EVEREADY INCOME FUND
TSX : EIS.UN

EVEREADY INCOME FUND

March 23, 2006 19:07 ET

Eveready Announces 2005 Year End Financial Results

CALGARY, ALBERTA--(CCNMatthews - March 23, 2006) - Eveready Income Fund (TSX:EIS.UN):

Highlights of the Year

- Completion of the acquisition of River Valley Income Fund and our conversion into a publicly traded income fund;

- Revenue for the year ended December 31, 2005 exceeded $220 million reflecting an increase of 140% over the same 12-month period in 2004;

- Net earnings of over $14 million or $0.38 per unit in 2005;

- Two increases in our monthly distribution - from $0.02 per unit to $0.03 per unit in April and then again to $0.04 per unit in October;

- Expansion in the Alberta oil sands region through substantial capital investment and generating $53.2 million of revenue from this region in 2005 (compared with $16.4 million for the six months ended December 31, 2004 and $35.6 million for the 12 months ended June 30, 2004);

- Expansion in the United States through the acquisition of the ICE Joint Venture in April 2005;

- Expansion in East-Central Alberta and Western Saskatchewan through a number of business acquisitions including Allstar Oilfield Services Ltd., completed in July 2005;

- Expansion into the oilfield equipment rental sector through the acquisitions of Canada-Wide Industries Ltd. and the assets of Head West Energy. This was followed by the announcement of a third oilfield equipment rental company that we expect to close in April 2006;

- Expansion of our environmental services capabilities through the acquisition of the Pembina Area Landfill near Drayton Valley, Alberta in November 2005.

We were also successful in raising equity capital and debt financing to fund our growth strategies. These included

- Raising $24 million in equity capital through a private placement in June 2005;

- Establishing a $60 million interest-only credit facility in September 2005;

- Raising $35 million in equity capital through a prospectus offering in November 2005;

- Raising $56 million in equity capital through a bought-deal financing in February 2006.



Selected Consolidated Financial Information:

------------------------------------------------------------------------
Period Ended December 31 December 31 June 30 June 30
2005 2004 2004 2003
(12 months) (6 months) (12 months) (12 months)
------------------------------------------------------------------------
$ thousands, except
per unit amounts

Revenue $ 220,309 $ 46,735 $ 78,944 $ 57,103

Gross profit 71,014 16,548 28,257 20,025
Gross margin (%) 32.2% 35.4% 35.8% 35.1%

EBITDA(1) 31,122 4,815 7,103 5,388
EBITDA margin (%) 14.1% 10.3% 9.0% 9.4%

Net earnings (loss) 14,317 (126) 783 1,420
Per unit - basic
and diluted(2,3) 0.38 n/a n/a n/a
------------------------------------------------------------------------

Cash flow from
operations before
changes in non-cash
operating working
capital(1) 26,633 2,575 5,136 3,868
Per unit - basic
and diluted (2,3) 0.71 n/a n/a n/a

Distributions declared 12,921 n/a n/a n/a
Per unit(3) 0.36 n/a n/a n/a
------------------------------------------------------------------------

Total assets 227,432 98,044 65,556 47,648
Long-term liabilities 51,356 45,525 31,862 23,422
Unitholders' Equity 127,272 18,927 12,759 8,212
------------------------------------------------------------------------
------------------------------------------------------------------------

Notes: (1) These financial measures are identified and defined under the
section "Non-GAAP Financial Measures".
(2) Basic and diluted per unit amounts have been calculated on
the basis that all rollover limited partnership units
("Rollover LP units") have been converted into Fund units.
(3) Per share amounts for the comparative periods have not been
calculated as the Fund's predecessor, Eveready Industrial
Group Ltd. was a privately owned company during those
periods.


This Management's Discussion & Analysis ("MD&A") was prepared as of March 21, 2006 and is provided to assist readers in understanding Eveready Income Fund's ("Eveready" or the "Fund") financial performance for the year ended December 31, 2005 and significant trends that may affect future performance of the Fund. This MD&A should be read in conjunction with the accompanying consolidated financial statements for the year ended December 31, 2005 and the notes contained therein. The accompanying consolidated financial statements have been prepared in accordance with Canadian generally accepted accounting principles ("GAAP") and the Fund's reporting currency is the Canadian dollar. Eveready is a reporting issuer in each of the provinces of Canada, except Quebec. The Fund's units trade on the Toronto Stock Exchange under the symbol "EIS.UN".

Additional information relating to the Fund including the Annual Information Form is available on the System for Electronic Document Analysis and Retrieval ("SEDAR") web site at www.sedar.com.

This MD&A contains forward-looking statements. Please see the section "Note Regarding Forward-Looking Statements" for a discussion of the risks, uncertainties and assumptions relating to those statements. This MD&A also makes reference to certain non-GAAP financial measures to assist users in assessing the Fund's performance. Non-GAAP financial measures do not have any standard meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other issuers. These measures are identified and described under the section "Non-GAAP Financial Measures".

Vision, Mission, Strategy and Core Business

Our Vision

Our vision is to be the one-stop service provider for our customers.

Our major customers require diverse services to meet their needs. More and more, these customers prefer to deal only with those suppliers capable of providing a wide range of top quality services that meet a variety of their needs.

Our Mission

Our mission gives us direction on how we operate, guides our actions for day-to-day business, and forms the backbone for our decision making.

Our mission is to be the preferred supplier to our customers. We plan to achieve this mission by providing the greatest value, not only to our customers but also to our employees, unitholders, communities and the environment. We are committed to sustaining our success in achieving this mission through:

- Employee safety, pride, integrity, and growth

- Responsiveness to customer needs

- Continuous improvement and innovation

- Corporate growth and profitability

Our Strategy

To achieve our vision we must grow. This means expanding our range of services, our geographic presence and the capacity of our existing services. The following initiatives are central to our strategy:

- Growing our existing services and adding new services to our existing customers

- Consolidating industry peers and competitors

- Positioning ourselves as a leading provider of oil sands infrastructure services

- Geographic expansion

This growth will be achieved organically through capital expansion and acquisition.

Further, these aggressive initiatives will be supported by:

- Improving yield management and operational utilization

- Diligent cash management and integration of processes

- Maintaining a robust workforce by attracting and retaining great people

- Unifying Eveready through employee ownership

Throughout this MD&A, we will discuss how we have executed our business strategies in 2005, and our plans for 2006. We will also discuss some of the risks that may prevent us from successfully executing our business strategies and achieving our vision.

Our Business

Eveready Income Fund manages a family of businesses that provide industrial and oilfield services from over 35 locations across Canada and the United States. These subsidiaries operate in three business segments: Industrial and Oilfield Services; Health, Safety, and Environmental Services; and Oilfield Equipment Rental Services. Our customers come from the energy, resource, and manufacturing sectors. Some are small operators. Some are the biggest in their fields.

Our staff roster fluctuates seasonally between 900 and 1,400 personnel. The aggregate fleet of Eveready consists of approximately 490 company-owned trucks and 180 lease-operated trucks. The fleet is made up of 70 chemical and high pressure trucks as well as 600 tractors, vacuum trucks, hydro vac trucks, pressure trucks, steamer trucks, tank trucks, and flush-by trucks. In addition, we also own additional skid mounted units and other large pieces of equipment. The magnitude of projects we undertake varies widely from several thousand dollars through $4,000,000 with many projects exceeding $1,000,000.

Not coincidentally, we provide a wide range of services to our customers. Our customers place great value on those providers who are able to deliver a broad, top-quality offering, an offering composed of many different services that support their operations. However, at our core, we operate in three different business segments:

Industrial and Oilfield Services

This is our core business segment, and it accounts for the majority of our current operations. These services are provided to our customers based on hourly, daily, or job rates for equipment, personnel, and materials. Some of the main services we offer in this business segment include:

- Chemical cleaning and decontamination

- High and ultra-high pressure water cleaning

- Wet and dry vacuum services

- Tank cleaning

- Furnace tube decoking and pigging

- Catalyst handling

- Line and sewer flushing

- Hot oiling

- Pressure testing

- Flush-by and coil tubing services

- Hydro-excavation and trenching services

- Fluid pumping, heating, and filtration

- Fluids hauling

- Steam cleaning

- Seismic line clearing

- Heli-drilling

Health, Safety and Environmental Services

We made a significant expansion into this business segment in the fourth quarter of 2005 with our acquisition of the Pembina Area Landfill based out of Drayton Valley, Alberta. The need for health, safety, and environmental services is growing in Western Canada and we plan to make our presence known in this area. Some of the core services that we currently provide include:

- Landfill solid waste disposal

- Deep well liquid waste disposal

- Emergency response services and training

- Mobile mechanical dredging and dewatering

- Mechanical services

- Mobile industrial health services

- Safety services

Oilfield Equipment Rental Services

The oilfield equipment rental sector is growing rapidly. High commodity prices for oil and gas have resulted in a significant increase in exploration and production activity. We expect the demand for oilfield equipment rental services to continue to increase due to this growth.

We first marked our entry into this business segment in November 2005 with our acquisition of Canada-Wide Industries Ltd., a private Alberta-based supplier of oilfield equipment rental services to the energy sector. From there, we continued our growth by acquiring the assets of Head West Energy, another private Alberta-based oilfield equipment rental company, subsequent to year-end. Finally, in December 2005, we announced the acquisition of a third oilfield equipment rental company that is expected to close in April 2005. We continue to pursue further opportunities in this sector.

These acquisitions have allowed us to provide a wide variety of oilfield equipment to our customers. These include access mats to distribute heavy loads over pipelines, temporary or permanently installed bridges used for remote site logistics, wellsite units, generators, and truck and trailer units.

The Common Link - Our Customer

As you can see, we provide a wide variety of services. Why? The common thread in everything we do is the needs of our customer. Our major customers are the same in all of our business segments. They require diverse services to meet their needs and prefer to deal with those suppliers that are able to provide a wide variety of top quality services.

Becoming a Public Income Fund

Before 2005, we were a privately owned company called Eveready Industrial Group Ltd. ("ER Group"). The company achieved year-over-year growth in revenue in each of the past 10 years. This rate of growth resulted in a significant increase in operational capability, depth, and diversity.

Although we were successful in achieving year-over-year growth, our ability to take full advantage of growth opportunities was limited because we were a private company. This was soon to change.

Acquisition of River Valley

Pursuant to an arrangement agreement dated December 3, 2004, ER Group acquired River Valley Income Fund ("River Valley") through a reverse-takeover transaction. This agreement was effective January 1, 2005. River Valley was a public income fund that provided oilfield services to customers in the oil and gas sector. These services included seismic line clearing and heli-drilling services. Concurrent with the acquisition, we changed our name to Eveready Income Fund.

This acquisition was important to us. Through this merger, ER Group was reorganized into a publicly traded income fund. This reorganized structure now allows us much greater access to capital markets to fund our continued growth by attracting new investors and providing a more liquid market for the Fund units than what previously existed for ER Group shares.

We also believe the income fund structure is beneficial to Unitholders in two ways:

- First, the income fund structure will allow us to handle our taxes more efficiently by reducing our liability at the corporate level, which will increase the amount of cash available for distribution to our Unitholders.

- Second, we intend to distribute a large portion of Eveready's available cash to our Unitholders. Not only will this provide Unitholders with a continuous stream of income, it will also ensure we take a disciplined approach to our business activities. A disciplined approach to managing capital will ensure that operating cash flows are maintained or increased to meet distribution expectations. This prevents us from deploying capital for questionable investments, such as out-of-core businesses or businesses with unproven potential.

Growing Smart

Over the last number of years, Eveready has undertaken a series of business acquisitions. These business acquisitions have played a key role in achieving our growth strategies. However, there are risks involved in growing this way. Therefore, it is critical that we GROW SMART.

Our business acquisition strategy is comprised of the following key elements. We will not stray from these core principals.

1. We Do our Due Diligence

All of our acquisitions are subject to a due diligence review by Eveready. We review their operations carefully to ensure they complement our current operations. We make sure the company has a strong management team and experienced long-term employees. We review their assets, accounting records and systems of internal control to ensure we know what we are buying. In short, we avoid surprises by doing our homework first.

2. Proven Success

Each business we acquire must have a proven track record of success. We target value in our acquisitions. We acquire businesses that have generated strong profits over consecutive years and have demonstrated an ability to grow successfully.

3. The People

When we complete a business acquisition, the most important asset we have acquired is the people that run that business. Keeping the people who made that business successful and a top performer in the industry is critical to continuing that success with Eveready.

4. We Will Not Overpay

A business acquisition must provide value to Eveready and to our Unitholders. Too often, we see public companies pay too much to acquire a business. This can result in both a decline in Unitholder value and an increase in the Unitholder's risk. We will not acquire a company just for the sake of growth, nor will we get into a bidding war with another public company.

We have completed many business acquisitions over the last few years, but we have turned down even more. Acquisitions are key to our growth, but they must provide long-term value to our Unitholders. If not, we pass on the acquisition opportunity.

Executing our Growth Strategy in 2005

Organic Growth Through Capital Expansion

We invested over $20 million in capital expenditures in 2005. This robust investment allowed us to expand significantly our services to our existing customers in a number of regions. Our largest investment in capital occurred in the oil sands region of Northern Alberta. As a result of this investment, we generated revenue of $53.2 million in 2005, an increase of over 46% from the same 12-month period ended December 31, 2004.

Our capital expenditure program for 2006 is approximately $43 million. This major investment will allow us to continue our organic growth in a number of regions. However, our focus will continue to be on expanding our oil sands service capabilities.

Expansion Through Acquisition

We completed several business acquisitions in 2005. These acquisitions expanded our existing services and added new services to our existing customers, consolidated a number of industry peers and competitors, and extended our operations into a number of new geographic locations. A summary of these acquisitions and how they will help us achieve our growth strategies is outlined below.

Expansion into the United States

Effective April 30, 2005 we acquired all of the business and assets of a joint venture between Diamond Tree Energy Ltd. and Innovative Coke Expulsion Inc. known as the ICE Joint Venture ("ICE"). The joint venture operates primarily out of Houston, Texas and is in the business of industrial cleaning using pigs to de-coke furnaces at oil and gas refineries. The pigs are also used to clean pipelines and other piping and tubing in the oil and gas industry.

The purchase price for the equipment, material agreements, and intangible assets of the joint venture was $6.5 million. In addition, we acquired the working capital balances of the joint venture. The majority of the purchase price was satisfied by the issuance of 2,599,179 Fund units for deemed proceeds of $7.9 million.

This acquisition allows us to significantly expand our operations in the United States. In addition to the industrial cleaning services already provided through this acquisition, we will also be adding other Eveready services to build our customer base in these markets. We originally expected this acquisition to provide an additional $2.0 million EBITDA (see "Non-GAAP Financial measures" and "Note Regarding Forward Looking Statements") to operations on an annual basis. Up to March 2006, this acquisition has performed below our original expectations. Competitive pricing pressures in all regions combined with lower revenue from the Texas and Louisiana regions as a result of hurricanes in 2005 have contributed to this decline. Utilization of equipment was also hampered in 2005 due to an increase in maintenance expenditures to bring the equipment up to Eveready standards. We are working on a strategy to improve our earnings in this business. This includes a coordinated marketing effort on new and existing customers and consolidation of a key competitor in 2006.

Expansion in East-Central Alberta and Western Saskatchewan

We initially achieved a significant presence in this region through the acquisition of Winterhawk Enterprises (Provost) Ltd. ("Winterhawk") in November 2004. In July 2005, we continued this expansion with the acquisition of Allstar Oilfield Services Ltd. and related assets ("Allstar"). Allstar is based in Lloydminster, Alberta, and provides a broad range of oilfield services to the energy sector including vacuum truck, pressure testing, flush-by, and hydro excavation services.

The final purchase price for Allstar will be based on the earnings of Allstar over the 12-month period ending June 30, 2006. However, as required under the purchase agreement, the minimum purchase price of $6.09 million less assumed debt of approximately $4.13 million was satisfied on closing via the issuance of 454,996 Fund units for consideration of approximately $1.96 million. The final purchase price will be based on a multiple of 4.25 times earnings before interest, depreciation and amortization, and other adjustments realized during the 12 month period ending June 30, 2006.

We estimate that Allstar could contribute an additional $1.5 million EBITDA (see "Non GAAP Financial Measures" and "Note Regarding Forward Looking Statements") to operations on an annual basis with the potential to grow significantly above this level.

During the fourth quarter of 2005, we continued our expansion in this region by acquiring four additional oilfield service companies and announcing the acquisition of a fifth company that was completed subsequent to year-end. These acquisitions have expanded our operations into a number of new geographical areas including Stettler and Wainright in East-Central Alberta and Coleville and Waseca in Western Saskatchewan. These acquisitions have also consolidated a number of industry peers and competitors in these regions. The total purchase price for these acquisitions was approximately $8.8 million.

We believe that each of these acquisitions will provide us accretive earnings growth on a per-unit basis and could generate additional EBITDA of between $2.5 and $3.0 million (see "Non GAAP Financial Measures" and "Note Regarding Forward Looking Statements") in aggregate on an annual basis.

Expansion into the Oilfield Equipment Rental Services Industry

Our expansion into the oilfield equipment rental industry in 2005 began with our acquisition of Canada-Wide Industries Ltd. ("CWI"), effective November 1, 2005. CWI is a private Alberta-based oilfield equipment rental company that provides access mats to distribute heavy loads over pipelines and temporary or permanently installed bridges used for remote site logistics.

The purchase price for CWI was $7.79 million. We believe this acquisition could provide an additional $3.0 to $3.2 million EBITDA (see "Non-GAAP Financial Measures" and "Note Regarding Forward Looking Statements") to operations on an annual basis. CWI will also have the potential to grow significantly in the future due to the increasing demand for oilfield equipment.

Acquisition of the Pembina Area Landfill

On November 30, 2005, we significantly expanded our environmental services capability by acquiring Byram Industrial Services Ltd. ("Byram"). Byram owns and operates the Pembina Area Landfill ("PAL") near Drayton Valley, Alberta. This facility is engineered, constructed, and operated to meet and exceed all government regulations associated with this type of facility.

Byram has been a provider of quality waste disposal services in the Drayton Valley area for almost 25 years. In 1999, Byram developed and constructed the PAL facility and opened its first Class IA hazardous waste cell. This Class IA landfill is one of only two facilities in the Province of Alberta. The Class IA landfill design consists of an engineered clay liner, two synthetic liners, leak detection, leachate collection system, and a host of environmental monitoring programs. In 2002, Byram opened its first Class II waste cell. The Class II cells provide industry access to economical non-hazardous waste disposal within the strict environmental framework associated with a hazardous waste management facility.

The purchase price of $18.5 million was satisfied via (i) $12.0 million in cash and (ii) $6.5 million via the issuance of 1,416,122 Fund units. Prior to completion of the acquisition, Byram entered into a 25-year royalty agreement with a former shareholder, requiring payments calculated at 5% of the gross revenue generated by PAL.

We expect this will be a very profitable business for us. This acquisition will significantly expand our capability to dispose of waste materials in an environmentally sound manner. We expect PAL to generate revenues of between $7.0 and $10.0 million and EBITDA of approximately $5.0 to $7.0 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward Looking Statements") for the year ended December 31, 2006.

Analysis of Operating and Financial Results

Measuring Financial Success

At the end of the day investors will evaluate how successful we were in meeting our goals. A key measure is our corporate growth and profitability. So how do we measure financial success?

We measure it over the long-term. We do not measure success based on what our financials looked like yesterday or what they will look like tomorrow, but what our financial performance will be over the long-term. This is because both our vision and Principal Unitholders are focused on the long-term. We measure the success of our growth strategies by tracking our performance using the following key financial measures:

EBITDA: EBITDA (see "Non-GAAP Financial Measures") is defined as earnings before interest, taxes, depreciation, and amortization and is a core performance measure that we use to measure profitability. EBITDA provides us an indication of the financial results generated by our principal business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions and before non-cash amortization expense. We also use EBITDA as a key performance measure in assessing the profitability and value of potential business acquisitions. A comparison of EBITDA is provided in the following graph.

Cash flow: Cash flow from operations (before changes in non-cash operating working capital - see "Non-GAAP Financial Measures") is key to Eveready and key to our investors. This cash flow measure provides an indication of our ability to grow our operations and to distribute income to our Unitholders.

Revenue: Revenue growth drives all of our other financial performance measures. Eveready has achieved year-over-year revenue growth in each of the past 10 years and we think this trend will continue in the foreseeable future. Our customers want a one-stop-shop service provider who can meet many of their broad service needs. We believe that continuing to achieve strong year-over-year revenue growth will allow us to be the dominant service supplier in the industry.

Net Earnings: Growing our revenue, EBITDA, and cash flow will contribute to an increase in our net earnings. Net earnings represent our bottom line, and growing our net earnings per unit drives Unitholder value.

Key Performance Drivers

At Eveready our performance depends on

- Attracting and retaining quality employees;

- Making safety a priority;

- Capitalizing on our growth opportunities; and

- Ensuring that Eveready's growth is properly financed.

Attracting and Retaining Quality Employees

Our employees are critical to our long-term success and viability. Right now, our industry is experiencing a very high demand for quality employees and labourers, which are in short supply. Our success in the future depends heavily on our ability to attract and retain key personnel. Without doing this, Eveready's long-term success could be threatened.

To attract and retain quality employees, we need to make sure our employees enjoy competitive wages and opportunities for growth, and have a vested interest in Eveready's future. We differentiate ourselves from many other companies in our field by making our employees owners. This ensures our employees have a vested interest in Eveready's performance. Since the beginning, Eveready has always been employee owned and this approach to ownership still holds true today. Even before we became a public company early in 2005, we already had over 80 employee shareholders. This core structure has not changed since becoming a public company.

1. Management Ownership

As of March 21, 2006 Eveready's senior officers and trustees owned approximately 31% of Eveready's outstanding Fund units and Rollover LP units. We believe this is important because it ensures management's interests are aligned with those of our Unitholders.

Furthermore, upon becoming a public income fund the Principal Unitholders of Eveready signed a Principal Unitholder Agreement. This agreement requires that each principal Unitholder reinvest 100% of their monthly distributions in additional Fund units and prevents them from selling more than 10% of their Fund units (or Rollover LP units) in any 12-month period prior to March 31, 2010. This is important because it ensures that the Principal Unitholders, many of whom are also employees or trustees of Eveready, are committed to the long-term success of Eveready. As of March 21, 2006, approximately 33% of the outstanding Fund units and Rollover LP units of Eveready were subject to the Principal Unitholder Agreement.

2. Employee Unit Plan

Eveready will be submitting a new Employee Unit Plan for approval at our 2006 annual general meeting to be held in May 2006. Under this plan, key employees of Eveready, selected based on their contributions to Eveready's current success, will be invited to join.

Under this plan, selected employees will be invited to acquire an allotted number of Fund units from Eveready that we will issue from treasury (including through the exercise of options). The employees will have the option of financing this purchase through a BMO Bank of Montreal unit purchase loan. Eveready will match this acquisition by acquiring the same number of Fund units on the open market. The matched Fund units will vest to the employees 20% per year over five years. The employees will earn distributions on both the Fund units they acquired and the matching Fund units that Eveready acquires on their behalf.

This is a very exciting plan for our employees and we believe that this will help to recruit and retain key employees who are critical to our future success.

3. RRSP Plan

In December 2005, Eveready established a new matching RRSP plan for its employees. Under this plan, we will match the employees' contributions up to 5% of their annual gross earnings in a RRSP plan that invests in Eveready Fund units. Not only does this plan encourage employee savings, it will also make the majority of Eveready's employees Unitholders and provide Eveready's employees with a vested interest in our long-term success.

Making Safety a Priority

A cornerstone of our customer service is our commitment to safety. We promote behaviour-based safety through extensive training for our employees. We also base management remuneration on safe work performance and safety leadership. Continuing to make safety a priority for our employees and customers is critical to meeting our long-term objectives. Without a strong safety record, we will not achieve our mission of being the preferred supplier amongst our customers.

Key elements of our safety strategy include

- Manager remuneration based on safe work performance and safety leadership;

- Regular, documented safety meetings dedicated to issues on the ground, including pre-project and tailgate meetings - a minimum of one per shift;

- Critical Activity Safe Work Plans;

- A Safety Awards program that rewards behaviour-based safety; and

- Advanced automated equipment and personal protective equipment.

Capitalizing on our Growth Opportunities

We need to grow in order to enhance the range and depth of services we offer our customers. There are significant growth opportunities that we need to take advantage of, including the following:

- Consolidation of industry peers and competitors. Industrial and oilfield services, health, safety and environmental services, and oilfield equipment rental services are relatively mature businesses of the Canadian infrastructure service industry. However, they remain quite fragmented. Thus, while there is growth potential in each of the services we provide, the potential for consolidation of industry peers and competitors also remains very high.

- Becoming the leading provider of oil sands infrastructure services. With nearly one quarter of our cash flow already driven by oil sands-related activities, Eveready has already positioned itself as a leading provider of infrastructure services to the oil sands sector. We expect to enjoy substantial growth, matching that expected growth in oil sands infrastructure development. This includes not only large-scale infrastructure construction, but also long-term infrastructure maintenance requirements.

- Expanding into the United States. We also face a number of growth opportunities to expand geographically, including in the United States. We are currently pursuing growth opportunities in the United States to build on our acquisition of the ICE Joint Venture in April 2005.

Financing our Growth

We must have sufficient capital to realize these crucial growth opportunities. Without sufficient capital resources, no matter how good the opportunities, we may not be able to sustain our potential level of growth.

To fund growth, we require cash generated from both internal and external sources. We obtain this financing through operating cash flows that we retain, the public sale of Fund units and through debt financing. In 2005 and up to the date of this MD&A, we raised over $184 million in new external capital. These financings include the following:

Private Placement - June 2005

Pursuant to a private placement completed June 16, 2005, we issued 6,400,000 Fund units at a price of $3.75 per Fund unit for gross proceeds of $24.0 million. Issuance costs of $1.7 million were incurred in connection with the private placement resulting in net proceeds of $22.3 million.

Public Offering - November 2005

Pursuant to a final prospectus dated November 10, 2005, filed with the applicable securities regulatory authorities, we completed a public offering of 7,025,650 Fund units at a price of $5.00 per Fund unit for gross proceeds of $35.1 million. Issuance costs of approximately $2.3 million were incurred in connection with the offering resulting in net proceeds of $32.8 million.

Public Offering - February 2006

On February 23, 2006, we completed a bought-deal financing of 8,000,000 Fund units priced at $7.00 per Fund unit for gross proceeds of $56 million. The Fund units were issued pursuant to a final prospectus dated February 13, 2006. We used the net proceeds, after issuance costs, to fund debt obligations incurred as a result of past acquisitions and past capital expenditure programs.

Debt Credit Facilities

On September 30, 2005, we established a $60 million revolving extendible senior secured credit facility. The purpose of the credit facility was to refinance existing term indebtedness and subordinated debt and operating leases, and to finance future capital expenditures and acquisitions. This credit facility requires payments of interest only at the Canadian dollar one month bankers' acceptance rate plus 3.25%. An additional stand-by fee calculated at an annual rate of 0.25% per annum is also required on the unused portion of the credit facility.

In November 2005, the maximum principal amount available under our demand revolving credit facility was increased from $18.0 million to $27.0 million.

These equity offerings and new credit facilities have provided us the financial flexibility that we need to pursue and take advantage of growth opportunities. However, we will need to obtain additional growth capital from both internal and external resources in the future to achieve our on-going growth opportunities.

Results of Operations

Comparative Figures

Historically, the Fund's predecessor, ER Group, operated with a June 30th year-end. However, in preparation for our reorganization into a publicly traded income fund, ER Group changed its year-end to December 31st. This resulted in a six month transition year for ER Group. As a result, the comparative figures provided in this MD&A and in the accompanying consolidated financial statements include both the six month transition year ending December 31, 2004 and the old financial year ending June 30, 2004.



Revenue

------------------------------------------------------------------------
Period Ended December 31 December 31 June 30
2005 2004 2004
(12 months) (6 months) (12 months)
------------------------------------------------------------------------
$ thousands

Revenue by segment:
Industrial and oilfield $ 206,592 $ 43,878 $ 75,086
Health, safety and environmental 11,520 2,857 3,858
Oilfield equipment rental 2,197 - -
------------------------------------------------------------------------

Total 220,309 46,735 78,944
------------------------------------------------------------------------
------------------------------------------------------------------------


We have experienced significant revenue growth over the past few years. By exceeding $220.3 million of revenue in 2005, we achieved growth of $128.4 million or 140% compared to revenue of $91.9 million reported for the 12-month period ended December 31, 2004 (179% increase over the year ended June 30, 2004). Acquisitions and organic expansion in existing locations have fuelled this growth.

Increases in revenue for the year ended December 31, 2005 compared to the annualized 12-month period ended December 31, 2004 were the result of:

- The acquisition of River Valley effective January 1, 2005 contributed $51.1 million of revenue to operations in 2005.

- The acquisition of Winterhawk. Revenue from industrial and oilfield services in East-Central Alberta and Western Saskatchewan contributed $48.5 million of revenue to operations in 2005, reflecting an increase of $41.8 million compared to revenue of $6.8 million in 2004. Operations in these regions began as a result of the acquisition of Winterhawk Enterprises (Provost) Ltd. ("Winterhawk") in November 2004. Allstar Oilfield Services Ltd. was added in July together with a number of smaller acquisitions during the fourth quarter of 2005.

- Expansion in the oil sands. We provided more oilfield and industrial services in the oil sands region of north-eastern Alberta, generating revenue of $53.2 million in 2005. This represented an increase of $16.7 million or 46% from revenue of $36.5 million generated for the same 12-month period ended December 31, 2004.

- The acquisition of the business and assets of the ICE Joint Venture ("ICE") effective April 30, 2005 contributed $4.8 million of revenue to operations.

- The acquisition of Canada-Wide Industries Ltd. ("CWI") effective November 1, 2005 contributed $2.2 million of revenue to operations.

- The acquisition of the Pembina Area Landfill ("PAL") effective November 30, 2005 contributed $900 thousand of revenue to operations in December.

The remaining $10.9 million revenue increase was achieved by expanding existing services across various regions.

We expect to continue our growth in 2006 with a view of achieving revenues in excess of $300 million (see "Note Regarding Forward Looking Statements"). Expected organic growth in the Alberta oil sands region and other existing locations, combined with a full year of operating results from many of our acquisitions in fiscal 2005 will contribute to this increase. We are also pursuing a number of additional business acquisitions in 2006. If completed, these business acquisitions will contribute to additional revenue growth beyond our $300 million target.

Revenue by Segment

The table above shows that the majority of our historical revenue has been generated from the industrial and oilfield services segment. We expect this allocation to change in 2006.

Prior to 2005, the health, safety, and environmental services business segment was not a significant part of Eveready's overall business. However, with the acquisition of the Pembina Area Landfill on November 30, 2005, we expect the revenue and earnings from this business segment to be substantially higher. We have estimated that revenue of $7.0 million to $10.0 million will be generated from this facility in fiscal 2006 (see "Note Regarding Forward Looking Statements"). We will also be looking at additional growth opportunities in 2006 to continue our expansion in this business segment.

The oilfield equipment rental services business segment was incorporated in the fourth quarter of 2005 with the acquisition of Canada-Wide Industries Ltd. ("CWI") effective November 1, 2005. As such, the 2005 fiscal year shows only two months of revenue from this new segment. Our presence in this business segment will also grow substantially in 2006. In addition to a full year of revenue from CWI, we will continue to expand this segment through acquisition and capital investment in 2006. This includes the acquisition of the business and assets of Head West Energy effective March 1, 2006 and the acquisition of Tornado Rentals Ltd., which is proposed to be effective April 1, 2006.



Gross Profit

------------------------------------------------------------------------
Period Ended December 31 December 31 June 30
2005 2004 2004
(12 months) (6 months) (12 months)
------------------------------------------------------------------------
$ thousands

Amount $ 71,014 $ 16,548 $ 28,257
Gross margin % 32.2% 35.4% 35.8%
------------------------------------------------------------------------
------------------------------------------------------------------------


With our revenue growth, we increased our gross profit to $71.0 million in 2005. However, our gross margin percentage for the year ended December 31, 2005 decreased to 32.2%. This represented a decline of 3.2% and 3.6% respectively from the six month period ended December 31, 2004 and the year ended June 30, 2004.

The acquisition of Winterhawk in November 2004 accounted for the majority of this decline. Winterhawk provides a significant portion of its oilfield services using third-party lease operators, supplementing the services provided by Winterhawk's own employees and equipment. This allows Winterhawk to maximize its growth while remaining flexible enough to manage its costs. However, services provided using third party lease operators result in a lower gross margin percentage.

We expect our recent expansion into the health, safety and environmental services and oilfield equipment rental services segments will have a positive effect on our overall gross margin percentage in 2006.



Administrative and General Expenses

------------------------------------------------------------------------
Period Ended December 31 December 31 June 30
2005 2004 2004
(12 months) (6 months) (12 months)
------------------------------------------------------------------------
$ thousands

Amount $ 39,346 $ 11,793 $ 20,772
% of revenue 17.9% 25.2% 26.3%
------------------------------------------------------------------------
------------------------------------------------------------------------


Administrative and general expenses increased significantly from the comparative 2004 periods. These increases are attributable to additional salary and wage costs and other fixed expenses required to support our increased level of revenue for new and existing services. This includes additional administrative support for our acquisitions completed in the last 6 months of 2004 and during 2005. This includes the acquisitions of River Valley, Winterhawk, ICE, Allstar, CWI, and PAL. The Fund also incurs additional administrative costs associated with being a public income fund that were not required as a private company in fiscal 2004.

As a percentage of revenue, administrative and general expenses for the year ended December 31, 2005 declined to 17.9% compared to 25.2% and 26.3% respectively for the comparative periods in 2004. We believe that this improvement over the prior year reflects our ability to expand our operations efficiently by keeping our growth in overhead costs to a minimum. We also benefit from the economies of scale improvements that come with a larger revenue base.

We estimate that administrative and general expenses will continue to grow significantly in 2006 due to our planned revenue growth. However, administrative and general expenses as a percentage of revenue should remain unchanged or decrease due to continuing economies of scale improvements.



Amortization

------------------------------------------------------------------------
Period Ended December 31 December 31 June 30
2005 2004 2004
(12 months) (6 months) (12 months)
------------------------------------------------------------------------
$ thousands

Amount $ 10,479 $ 2,430 $ 3,330
% of revenue 4.8% 5.2% 4.2%
------------------------------------------------------------------------
------------------------------------------------------------------------


Amortization expense increased substantially in 2005 due to significant growth in our property, plant, and equipment. Property, plant, and equipment increased to $110 million at December 31, 2005 compared to $58 million at December 31, 2004. Amortization calculated as a percentage of revenue was 4.8% for the year ended December 31, 2005. This balance is comparable with prior periods.



EBITDA

------------------------------------------------------------------------
Period Ended December 31 December 31 June 30
2005 2004 2004
(12 months) (6 months) (12 months)
------------------------------------------------------------------------
$ thousands

Amount $ 31,122 $ 4,815 $ 7,103
% of revenue 14.1% 10.3% 9.0%
------------------------------------------------------------------------
------------------------------------------------------------------------


Our EBITDA (see "Non-GAAP Financial Measures") grew to $31.1 million or 14.1% of revenue for the year ended December 31, 2005. This increase in EBITDA, both in amount and as a percentage of revenue, reflects our strong improvement in operating results in 2005. We were able to significantly increase revenue, and also to control the increases in direct costs and administrative and general expenses. We expect EBITDA to grow substantially in 2006 by achieving a full year of operating results from our business acquisitions completed in 2005. In addition, we will benefit from continued organic growth in existing locations, including the Alberta oil sands region, and through additional business acquisitions in 2006.

Our goal is to achieve an EBITDA margin ("See Non-GAAP Financial Measures") of approximately 15% of revenue. In 2005, Eveready incurred a number of general and administrative expenses to build the infrastructure required to support our significant increase in revenue in 2005 and expected increases in 2006. This investment has contributed to an overall EBITDA margin below our target of 15%. The economies of scale benefits that come with a larger revenue base will assist us in meeting our target EBITDA margin in the future.



Interest Expense

------------------------------------------------------------------------
Period Ended December 31 December 31 June 30
2005 2004 2004
(12 months) (6 months) (12 months)
------------------------------------------------------------------------
$ thousands

Amount $ 4,791 $ 2,142 $ 2,349
% of revenue 2.2% 4.6% 3.0%
------------------------------------------------------------------------
------------------------------------------------------------------------


Interest expense increased to $4.8 million in 2005, but declined as a percentage of revenue to 2.2% compared to 4.6% and 3.0% for the comparative periods in 2004. The increase in interest expense is directly linked to higher long-term debt and bank indebtedness balances in 2005 to support the increase in our operating activity. However, the decrease in interest expense as a percentage of revenue is attributable to substantial equity growth in 2005. A large portion of our revenue growth in 2005 was financed by equity.

Included in interest expense in 2005 was a non-recurring interest penalty of $422 thousand associated with extinguishing our subordinated debt in September pursuant to the establishment of the new $60 million credit facility. The settlement of the subordinated debt, which was bearing interest at an annual rate of 18%, will result in lower interest expense being recognized in future periods. Excluding this non-recurring expenditure, interest expense would have been $4.4 million or 2.0% of revenue in 2005.

Included in interest expense for the six months ended December 31, 2004 was interest of $632 thousand relating to dividends declared on redeemable preferred shares classified in the accompanying consolidated financial statements as liabilities. Excluding this non-recurring expenditure, interest expense would have been $1.5 million, or 3.2% of revenue.

Unit-based Compensation

On November 17, 2005, we granted 1,255,000 options to approximately 141 employees and six trustees of the Fund. These options were issued in conjunction with a broader employee Unit Participation Plan that we plan to implement in 2006 (see discussion under "Performance Drivers"). The options are exercisable at $5.00 per Fund unit and had vested immediately. Unit-based compensation expense for the options granted, recognized at their estimated fair value using the Black-Scholes option valuation model, was $627 thousand. We expect that all of the outstanding options will be exercised at the time of implementation of the new Unit Participation Plan.



Income Taxes

------------------------------------------------------------------------
Period Ended December 31 December 31 June 30
2005 2004 2004
(12 months) (6 months) (12 months)
------------------------------------------------------------------------
$ thousands

Earnings before income taxes $ 15,852 $ 243 $ 1,424
Income tax expense 1,535 369 641
Effective tax rate 9.7% 151.9% 45.0%
------------------------------------------------------------------------
------------------------------------------------------------------------


It is difficult to compare income taxes expense to that of prior periods without putting the amounts into perspective. The statutory income tax rates in Alberta, where the majority of our operations are currently conducted, is approximately 34%. The higher effective rates experienced in December and June 2004 result from non-deductible expenses. Specifically, for the six month period ended December 31, 2004, interest expense of $632 thousand, resulting from dividends declared on redeemable preferred shares, was not deductible for income taxes. Excluding this expense, earnings before income taxes would have been $875 thousand and the effective tax rate would have been 42.2%.

In 2005, Eveready was converted into an income fund to qualify as a mutual fund trust. As a result, we are no longer subject to income taxes to the extent that our taxable income in a year is paid or payable to our Unitholders. Accordingly, no provision for income taxes for the Fund is made.

However, we continue to follow the liability method of accounting for any incorporated subsidiaries that are subject to income taxes. Income tax expense recognized during the year ended December 31, 2005 relates to operations that remain within taxable incorporated subsidiaries of the Fund. This includes tax expense of $1.0 million incurred near the beginning of 2005 prior to the reorganization transaction being completed. We expect that, while the Fund will continue to recognize some income tax expense related to operations conducted in incorporated subsidiaries, the majority of the Fund's earnings will not be subject to corporate income taxes.



Net earnings and earnings per unit

------------------------------------------------------------------------
Period Ended December 31 December 31 June 30
2005 2004 2004
(12 months) (6 months) (12 months)
------------------------------------------------------------------------
$ thousands, except per
unit amounts

Net earnings (loss) $ 14,317 $ (126) $ 783
Earnings per unit
- basic and diluted 0.38 n/a n/a
------------------------------------------------------------------------
------------------------------------------------------------------------


Net earnings for the year ended December 31, 2005 grew significantly relative to the comparative periods ending in 2004. Substantial growth in operating revenue has contributed to the majority of this increase. The loss in the comparative period ended December 31, 2004 resulted from the declaration of a dividend of $632 thousand payable on redeemable preferred shares that was classified as interest expense. Without this non-recurring expenditure, we would have reported net earnings of $506 thousand for the 6-month period ended December 31, 2004.

Earnings per unit for the year ended December 31, 2005 were based on the weighted average number of units outstanding during the year. Basic and diluted per unit amounts have been calculated on the basis that all outstanding Rollover LP units have been converted into Fund units. The basic and diluted weighted average number of units outstanding for the year ended December 31, 2005 was 37,436,398 and 37,451,731 respectively.

Earnings per share for the comparative periods of the Fund's predecessor, ER Group, have not been disclosed as ER Group was a privately owned company during those periods.



Summary of Quarterly Data

------------------------------------------------------------------------
($ thousands,
except per Dec Sept June March Dec Sept June March
unit amounts) 2005 2005 2005 2005 2004 2004 2004 2004
------------------------------------------------------------------------

Revenue 64,693 56,415 44,016 55,185 26,948 19,787 21,378 23,737
EBITDA(1) 7,575 7,861 5,007 10,679 2,489 2,326 2,377 2,315
Net earnings 2,421 3,684 1,738 6,474 169 (295) 238 479
------------------------------------------------------------------------
Earnings per unit
- basic and
diluted(2,3) 0.05 0.09 0.05 0.21 n/a n/a n/a n/a
------------------------------------------------------------------------
------------------------------------------------------------------------

Notes: (1) EBITDA is identified and defined under the section "Non-GAAP
Financial Measures".
(2) Basic and diluted earnings per unit have been calculated on
the basis that all Rollover LP units have been converted
into Fund units.
(3) Per share amounts for the comparative quarters ended in
fiscal 2004 have not been calculated as the Fund's
predecessor, ER Group, was a privately owned company.
(4) Quarterly earnings per unit are not additive and may not
equal the annual earnings per unit reported. This is due
to the effect of units issued during the year on the weighted
average number of units outstanding.


Our operations traditionally follow a seasonal pattern, with revenue and earnings traditionally being higher in the first three months than in the other quarters of the year. However, this has not always been the case over the past eight quarters due to a number of factors, including the completion of a number of significant acquisitions over the past two years. In addition, some of our growth has been in areas subject to less seasonality, which results in more consistent operating performance from quarter to quarter.



Financial Condition and Liquidity

------------------------------------------------------------------------
December 31 December 31 June 30
2005 2004 2004
------------------------------------------------------------------------
($ thousands, except
ratio amounts)

Current assets $ 68,980 $ 27,836 $ 20,384
Total assets 227,432 98,044 65,556
------------------------------------------------------------------------

Current liabilities 48,804 33,592 20,935
Total liabilities 100,160 79,117 52,797
------------------------------------------------------------------------

Unitholders' Equity 127,272 18,927 12,759
------------------------------------------------------------------------

Working capital ratio(1) 1.41 0.83 0.97
Funded Debt to total capital
ratio(2) 0.33 0.67 0.66
------------------------------------------------------------------------
------------------------------------------------------------------------

Notes: (1) Working capital ratio is calculated as current assets divided
by current liabilities (see "Non-GAAP Financial Measures").
(2) Funded debt to total capital is calculated as funded debt
(bank indebtedness, long-term debt, notes payable,
subordinated debt and the current portions of long-term debt,
notes payable, and subordinated debt) divided by total
capital (funded debt plus unitholders' equity plus preferred
shares and amounts due to unitholders) - (see "Non-GAAP
Financial Measures").


Working Capital

Our working capital improved from a working capital deficit of $5.8 million on December 31, 2004 to a positive working capital position of $20.2 million at December 31, 2005. Strong cash flow generated from operations during 2005 contributed to this improvement. In addition, we completed two equity financings in 2005 that raised over $55 million in cash, after issuance costs. This included completion of a private placement in June 2005 for net proceeds of $22.3 million and a prospectus equity offering in November 2005 that raised net proceeds of $32.8 million, after issuance costs. Finally, on September 30, 2005, pursuant to the establishment of a $60 million interest-only credit facility, the current portion of long-term debt was eliminated. The new credit facility does not currently require any principal repayments.

We expect our working capital to remain strong in 2006 due to continued positive cash flow from operations. In addition, the completion of a third equity offering in February 2006 raised gross proceeds of $56 million, before issuance costs by issuing 8.0 million Fund units at a price of $7.00 per Fund unit.

Cash Flow from Operations

Cash flow from operating activities was approximately $10.0 million for the year ended December 31, 2005 compared to $3.1 million for the six month period ended December 31, 2004 and $3.5 million for the year ended June 30, 2004. This substantial improvement is a result of an increase in revenue and earnings in 2005. Our increase in operating activity also contributed to significant increases in our non-cash operating working capital balances, including accounts receivable and inventory. If we exclude changes in non-cash operating working capital balances, we actually generated positive operating cash flow of $26.6 million in 2005.

Capital Expenditures

We acquired approximately $64.7 million in additional property, plant, and equipment in 2005. $37.3 million of these assets were acquired through business acquisitions. In addition, capital expenditures of $21.8 million were incurred to expand our service capabilities in existing markets and capital expenditures of $5.6 million were incurred to buy out existing equipment lease commitments. This significant investment in property, plant and equipment was necessary to support the growing demand for the industrial and oilfield services and health, safety, and environmental services that we provide. These capital expenditures also reflect our capital expenditure program, which plans for the replacement of old equipment when it becomes cost prohibitive to operate due to high equipment and vehicle costs.

Our capital expenditure program for 2006 is approximately $43 million. These capital expenditures will help increase our operating capacity to meet growing demand for our services, and to upgrade and replace existing capital assets. The program includes acquiring over 130 new service units, including chemical and high pressure units, vacuum trucks, hydro-vac trucks, pressure trucks, steamer trucks, tank trucks, flush-by units, and other support equipment. We also plan to invest approximately $3.0 million in 2006 to expand our capacity at the Pembina Area Landfill.

We will fund these capital expenditures from our existing credit facilities and from cash generated from operations, including operating cash flow retained through the Distribution Reinvestment Plan.

Long-Term Debt and Contractual Obligations

On September 30, 2005, we established a $60 million revolving extendible senior secured credit facility. Through this credit facility, we were able to refinance all of our existing term indebtedness and subordinated debt and buy out many of our operating lease commitments. This facility also provides us with additional flexibility to finance future capital expenditures and acquisitions. As of December 31, 2005, this credit facility comprised 100% of our long-term debt.

This credit facility requires payments of interest only at the Canadian dollar one month bankers' acceptance rate plus 3.25%. At December 31, 2005, the effective interest rate on this credit facility was 6.43%. An additional stand-by fee calculated at an annual rate of 0.25% per annum is also required on the unused portion of the credit facility. The credit facility is secured by a first fixed charge over equipment and a second position charge over accounts receivable and inventory.

Long-term debt increased by $15.9 million to $49.9 million as of December 31, 2005 compared to long-term debt of $34.0 million as of December 31, 2004. The majority of this increase resulted from the following factors:

- Long-term debt obligations of $2.6 million were acquired upon the reverse takeover acquisition of River Valley;

- Subordinated debt of $3.7 million was refinanced through the new credit facility;

- Equipment lease commitments of $5.6 million were bought out pursuant to the establishment of the above credit facility; and

- Additions to property, plant and equipment acquired during the year that were financed through long-term debt.



Our contractual obligations for the next five years are as follows:

------------------------------------------------------------------------
Contractual
Obligations
($ in thousands) 2006 2007 2008 2009 2010 Total
------------------------------------------------------------------------

Long-term debt - 14,966 19,956 14,966 - 49,888
Notes payable 3,620 85 - - - 3,705
Operating leases 5,520 5,763 3,960 997 614 16,854
------------------------------------------------------------------------

Total 9,140 20,814 23,916 15,963 614 70,447
------------------------------------------------------------------------
------------------------------------------------------------------------


The new long-term debt credit facility does not require any principal repayments. The credit facility is renewable semi-annually subject to the mutual consent of both parties. To the extent that the credit facility is not renewed, the outstanding credit facility will be subject to a 12-month interest-only phase followed by a straight line amortization period of 30 months. The above table presents the minimum principal repayments required on the credit facility if it were not renewed (the next renewal date is March 31, 2006) and we were not able to refinance the credit facility with another lender.

Notes payable consist of unsecured promissory notes due to various entities. Notes payable of $3.5 million bear interest at a rate of 6.0% and are due July 1, 2006. The remaining note payable bears interest at a rate of 6.7% and is repayable in varying instalments until October 2007. On December 31, 2005, notes payable of $880 (bearing interest at a rate of 6.0%) were owing to an officer (and spouse) of the Fund.

Unitholders' Equity

Unitholders' Equity increased by $108.4 million to $127.3 million at December 31, 2005 compared to $18.9 million at December 31, 2004. This increase results from an increase in accumulated earnings during the year as well as a significant increase in Unitholders' Capital. The notes to the accompanying consolidated financial statements provide a schedule showing the changes in Unitholders' Capital during the year. The increase results from a number of factors, including the issuance of Fund units upon the reverse takeover acquisition of River Valley. Further increases resulted from the Distribution Reinvestment Plan, business acquisitions, the equity private placement in June 2005, and the prospectus public offering completed in November 2005.



Distributions

The following table summarizes our distributions during the year ended
December 31, 2005:

------------------------------------------------------------------------
$ thousands,
except per
unit amounts Net
Distribution Distributions Distributions Distributions
Record Date per Unit ($) ($) Reinvested ($) Paid ($)
------------------------------------------------------------------------

January 31, 2005 0.02 153 122 31
March 4, 2005 0.02 154 124 30
March 30, 2005 0.02 154 126 28
April 29, 2005 0.03 906 609 297
May 31, 2005 0.03 1,012 617 395
June 30, 2005 0.03 1,207 602 605
July 29, 2005 0.03 1,224 623 601
August 31, 2005 0.03 1,228 620 608
September 30, 2005 0.03 1,231 615 616
October 31, 2005 0.04 1,646 824 822
November 30, 2005 0.04 2,000 831 1,169
December 30, 2005 0.04 2,006 844 1,162
------------------------------------------------------------------------

Total 0.36 12,921 6,557 6,364
------------------------------------------------------------------------
------------------------------------------------------------------------


Cash distributions are normally paid by the Fund on a monthly basis to Unitholders of record on the last business day of each month. Distributions are payable on or about the 15th day of the month following the record date.

Taxation of Distributions

Our distributions consist of taxable and tax-deferred components. The taxable amount of our distributions in 2005 was based on the taxable income of the Fund for the year. For 2005, 55% of the distributions declared were considered taxable. The remainder of the distributions were considered a return of capital or tax-deferred amount. Tax-deferred distributions are considered to be a return of capital for income tax purposes and will reduce the adjusted cost base of the Fund units held. Currently, the Fund benefits from capital cost allowance deductions for income tax purposes exceeding amortization expense for financial reporting purposes. The benefit of these tax deductions flow through to the Unitholders by reducing the taxable portion of the distributions they receive.

Distribution Reinvestment Plan

During the year ended December 31, 2005, we declared total distributions of $0.36 per unit or $12,921,000. Of this amount, there was a $6,557,000 reinvestment through our Distribution Reinvestment Plan ("DRIP"). In addition, there was a reinvestment of $57 thousand of cash distributions payable as at December 31, 2004, resulting in the issuance of a total of 1,294,959 Fund units for deemed proceeds of $6,614,000. Distributions declared during the three months ended March 31, 2005 were based on the number of Fund units of River Valley outstanding prior to completion of the income trust reorganization.

The DRIP is a voluntary program that permits eligible Unitholders automatically and without charge to reinvest monthly distributions in additional Fund units. Unitholders who elect to participate will see their periodic cash distributions automatically reinvested in Fund units at a price equal to 95% of the volume-weighted average price of all units traded on the Toronto Stock Exchange on the ten trading days preceding the applicable record date. Eligible Unitholders may participate in the DRIP by directing their broker, dealer, or investment advisor holding their Fund units to notify the plan administrator, Computershare Trust Company of Canada Ltd., through the Canadian Depository for Securities Inc. ("CDS").

Principal Unitholder Agreement

As a term under the arrangement agreement between ER Group and River Valley, certain Unitholders of the Fund (the "Principal Unitholders") signed a Principal Unitholder Agreement that requires each Principal Unitholder to reinvest immediately through the DRIP 100% of any cash distributions made by the Fund on that Principal Unitholder's Fund units or Rollover LP units prior to March 31, 2010. In addition, each Principal Unitholder is restricted from selling more than 10% of their aggregate Fund units or Rollover LP units in any one 12- month period before March 31, 2010. We believe that these agreements will ensure that the Fund has sufficient growth capital to continue to expand its operations. At March 21, 2006, approximately 33% of the outstanding Fund units and Rollover LP units of Eveready were subject to the Principal Unitholder Agreement.

Although we intend to continue making distributions to our Unitholders, these cash distributions are not assured, and may be reduced or suspended. Our ability to make cash distributions and the actual amount distributed will depend upon, among other things, our financial performance, our debt covenants and obligations, our ability to refinance our debt obligations on similar terms and at similar interest rates, our working capital requirements, and our future capital requirements. In addition, the market value of the Fund units may decline if we are unable to meet our cash distribution targets in the future, and that decline may be significant.



Distributable Cash

------------------------------------------------------------------------
Year Ended December 31
$ thousands, except per unit amounts 2005
------------------------------------------------------------------------

Cash flow from operating activities $ 9,958
Add (deduct) net change in non-cash operating
working capital 16,675
------------------------------------------------------------------------

Cash Flow from operations before changes in
non-cash operating working capital(1) 26,633
Principal repayment of long-term debt and
notes payable(3) (9,966)
Maintenance capital expenditures(1) (3,420)
------------------------------------------------------------------------
Cash available for distribution and growth (c)(1) 13,247
Per unit - basic and diluted(1) 0.35
------------------------------------------------------------------------
Distributions declared (a) 12,921
Payout ratio - including DRIP (a)/(c)(1) 97.5%
Cash distributions declared (b) 6,364
Payout ratio - excluding DRIP (b)/(c)(1) 48.0%
------------------------------------------------------------------------
------------------------------------------------------------------------

Notes: (1) These terms are identified and defined under the section"
Non-GAAP Financial Measures".
(2) Distributable cash information prior to January 1, 2005 is
not applicable because the Fund's predecessor, ER Group,
was a privately owned company during those periods.
(3) Principal repayment of long-term debt excludes those
amounts refinanced in connection with the establishment of
the new $60 million credit facility.
(4) The excess of cash available for distribution and growth
over distributions declared for the year ended December 31,
2005 reflects our reserves for such factors as seasonal
fluctuations in working capital and future growth capital
expenditures.


Pro-forma Distributable Cash

As a result of the $60 million credit facility established on September 30, 2005, our long-term debt no longer requires principal debt repayments. The following table illustrates what our cash available for distribution and growth and payout ratios would be if there were no required principal repayments of long-term debt or notes payable. These figures are provided including and excluding the effect of the DRIP.



------------------------------------------------------------------------
Year Ended December 31
$ thousands, except per unit amounts 2005
------------------------------------------------------------------------

Cash Flow from operating activities $ 9,958
Add (deduct) net change in non-cash operating
working capital 16,675
------------------------------------------------------------------------

Cash Flow from operations before changes in
non-cash operating working capital(1) 26,633
Maintenance capital expenditures(1) (3,420)
------------------------------------------------------------------------
Cash available for distribution and growth (c)(1) 23,213
Per unit(1) 0.62
------------------------------------------------------------------------
Distributions declared(a) 12,921
Payout ratio - including DRIP (a)/(c)(1) 55.7%
Cash distributions declared (b) 6,364
Payout ratio - excluding DRIP (b)/(c)(1) 27.4%
------------------------------------------------------------------------
------------------------------------------------------------------------

Notes: (1) These terms are identified and defined under the section"
Non-GAAP Financial Measures".


Off-Balance Sheet Arrangements

a) We have guaranteed certain loan balances owing by key employees to a chartered bank. The loans are secured by Fund units that were issued to the employees with the loan proceeds. At no time may the outstanding balance of the loans exceed the unit buy-back value. The total principal balance of the guarantees outstanding as at December 31, 2005 was approximately $1.1 million. Included in this amount is approximately $355 thousand that relates to loans owed by officers of the Fund.

b) We have provided certain guarantees to GE Canada Equipment Finance ("GE Finance") regarding financing that GE Finance has provided to certain contractors. The loans were provided for the purchase of specific service and automotive equipment used by the contractors in providing services to the Fund. The loans are secured by the specific equipment. The total balance of the loans guaranteed as at December 31, 2005 was approximately $1.0 million.

c) As of December 31, 2005 we had issued letters of credit up to a maximum amount of $820 thousand. The letters of credit are drawn on the same credit facility as is our bank indebtedness.

d) In the normal course of business, we enter into agreements that include indemnities in favour of third parties, such as engagement letters with advisors and consultants and service agreements. We have also agreed to indemnify our trustees, officers, and employees in accordance with our by-laws. Certain agreements do not contain any limits on our liability and, therefore, it is not possible to estimate our potential liability under these indemnities. In certain cases, we have recourse against third parties with respect to these indemnities. Further, we also maintain insurance policies that may provide coverage against certain claims under these indemnities.

Related Party Transactions

a) During the year ending December 31, 2005, we incurred $424 thousand for professional fees from a partnership of which one of the trustees of the Fund is an associate.

b) During the year ending December 31, 2005, we incurred $198 thousand for professional fees from a partnership of which one of the trustees of the Fund is a partner.

c) Included in general and administrative expenses for the year ending December 31, 2005 are occupancy costs of $325 thousand (December 2004 - $150 thousand, June 2004 - $296 thousand) that were paid to companies controlled by certain officers and/or trustees of the Fund.

d) During the year ending December 31, 2005 we incurred camp costs and equipment rental charges of $410 thousand paid to a company in which an officer and trustee of the Fund each own a 50% beneficial interest. In May, 2005 we acquired the camp assets of the company at a cost of $2,855 thousand.

e) During the year ending December 31, 2005 we earned service revenue of $304 thousand from a company in which an officer and trustee of the Fund each own a 50% beneficial interest.

f) During the year ended December 31, 2005, interest expense of $53 thousand was incurred on a note payable owing to an officer (and spouse) of the Fund.

These related party transactions were measured at their exchange amounts, which was the consideration established and agreed to by the related parties. Our opinion is that these transactions were conducted at terms and rates that represent fair value for the services received and the assets acquired. All of these transactions were conducted in the normal course of operations, except the assets acquired in part (d) above, which were supported by an independent appraisal.



Analysis and Review of Operations for the Fourth Quarter of 2005

------------------------------------------------------------------------
Three Month Period Ended December 31 December 31
2005 2004
------------------------------------------------------------------------
$ thousands, except per unit amounts

Revenue $ 64,693 $ 26,948
Direct costs 44,272 17,864
------------------------------------------------------------------------
Gross profit 20,421 9,084
Gross margin (%) 31.6% 33.7%

Administrative and general 12,167 6,635
Amortization 3,781 1,294
Interest 1,030 858
Unit-based compensation 627 -
Gain on disposal of property,
plant and equipment 52 (40)
------------------------------------------------------------------------

Earnings before income taxes 2,764 337
Income taxes 343 168
------------------------------------------------------------------------

Net earnings 2,421 169
Per unit - basic and diluted(2,3) 0.05 n/a
------------------------------------------------------------------------
------------------------------------------------------------------------

EBITDA(1) 7,575 2,489
EBITDA margin (%) 11.7% 9.2%
------------------------------------------------------------------------

Cash flow from operations before changes
in non-cash operating working capital(1) 7,087 1,549
Per unit - basic and diluted (2,3) 0.16 n/a
------------------------------------------------------------------------

Distributions declared 5,652 n/a
Per unit(3) 0.12 n/a
------------------------------------------------------------------------
------------------------------------------------------------------------

Notes: (1) These financial measures are identified and defined under
the section "Non-GAAP Financial Measures".
(2) Basic and diluted per unit amounts have been calculated on
the basis that all Rollover LP units have been converted into
Fund units.
(3) Per share amounts for the comparative period ended December
31, 2004 has not been calculated as the Fund's predecessor,
Eveready Industrial Group Ltd. was a privately owned company
during this period.


Revenue for the quarter ending December 31, 2005 increased $37.7 million or 140% compared to the same period in 2004. Again, this illustrates the significant growth we have experienced in our operations in 2005. This trend continues throughout the income statement, reflecting major increases in all expense categories required to support our increase in revenue. Revenue increased by $8.3 million compared to reported revenue of $56.4 million for the three months ended September 30, 2005. Acquisitions during the fourth quarter of 2005 combined with continued organic growth contributed to this increase.

Our gross margin during the fourth quarter of 2005 declined compared to the same period in 2004. This decline was consistent throughout 2005 (see discussion under "Gross Profit" in the "Results of Operations" section of this MD&A for additional information regarding this decline). Our gross margin percentage of 31.6% was equal to our gross margin percentage reported for the previous three months ended September 30, 2005.

Administrative and general expenses increased by $5.5 million or 83% compared to the same period in 2004. This, again, was caused by our significant increase in operating activity in 2005. As a percentage of revenue, administrative, and general expenses for the three months ended December 31, 2005 was 18.8%. This is comparable to a percentage of 18.0% for the prior three month period ended September 30, 2005.

Amortization expense increased by $2.5 million or 192%, which is reflective of the significant increase in property, plant, and equipment we experienced during the year. Intangible assets of $18.1 million acquired in 2005 also contributed to the increase in amortization expense.

Interest expense increased by $172 thousand or 20% compared with the same period in 2004. This increase was substantially less than those increases experienced in other expense categories. In 2005, we were able to finance the majority of our revenue and earnings growth through equity capital. As a result, interest expense as a percentage of revenue was significantly lower.

A non-recurring unit-based compensation expense of $627 thousand was also incurred during the fourth quarter of 2005. This expense related to 1,255,000 options granted to employees and trustees of the Fund on November 17, 2005.

Net earnings for the three months ended December 31, 2005 was $2.4 million or $0.05 per unit, a $2.2 million improvement over the comparative quarter in 2004. Earnings per unit was calculated based on the weighted average number of units outstanding during the three months ended December 31, 2005. The basic and diluted weighted average number of units outstanding for the three months ended December 31, 2005 was 44,945,119 and 44,969,042 respectively. Earnings per share for the comparative period of the Fund's predecessor, ER Group, for the three months ended December 31, 2004 has not been disclosed as ER Group was a privately owned company during that period.

Outlook - A 2006 Preview

We will continue to expand our business in 2006. Growing our business will be critical to achieving our vision of becoming the one-stop-shop service provider for our customers. Our growth in 2006 will be focused in the following areas:

- Continued consolidation of a fragmented oilfield services industry;

- Geographic expansion, both in Western Canada and in the United States;

- Solidifying our position as a leading service provider in the Alberta oil sands region;

- Increasing our market presence and expanding our service offerings in the oilfield equipment rental industry;

- Increasing our customer capabilities in the environmental services area; and

- Introducing new and related services that will complement the current services we provide our existing customers.

New Developments - Business Acquisitions

We have already made a great deal of progress in meeting our 2006 goals. A summary of the business acquisitions completed or announced up to the date of this MD&A follows.

Head West Energy

On November 14, 2005, we entered into an agreement to acquire the majority of the assets and business of Head West Energy, another private Alberta-based oilfield equipment rental company. The assets include well-site units, generators, and truck and trailer units. This acquisition closed on March 1, 2006. The gross purchase price of approximately $10.8 million was paid in cash. Equipment worth $1.2 million was then sold to a third party resulting in a net purchase price of approximately $9.6 million for the assets Eveready has retained.

The acquired assets and business are expected to generate revenues of between $8.0 and $9.0 million and EBITDA of approximately $3.5 to $4.0 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward Looking Statements") on an annual basis.

Tornado Rentals

In December, 2005, we entered into a letter of intent to acquire 100% of the issued and outstanding shares of Tornado Rentals Ltd. based in Stettler, Alberta. The company rents and sells a wide range of oilfield equipment. The proposed purchase price for the shares will be based on a pre-determined formula based on earnings and assets, but subject to a maximum purchase price of $8.0 million less adjustments for long-term debt and working capital.

Completion of the proposed acquisition is subject to a number of conditions including, but not limited to, the completion of satisfactory due diligence by Eveready. Assuming that all of the conditions are satisfied, we anticipate that the effective date of the acquisition will be April 1, 2006.

We estimate that this acquisition could generate EBITDA of between $2.5 and $3.0 million (see "Non-GAAP Financial Measures" and "Note Regarding Forward Looking Statements") on an annual basis.

The above acquisitions will allow us to significantly expand our presence in the oilfield equipment rental industry.

Mercedes Surveys

On February 28, 2006, we acquired 100% of the issued and outstanding shares of this private Alberta-based survey company for a total purchase price of approximately $1.6 million. The company provides seismic surveys using state-of-the-art equipment that support seismic exploration programs for oil and gas companies. This acquisition will complement the current seismic line clearing and heli-drilling services that our wholly owned subsidiary River Valley Energy Services Ltd. already provides. The purchase price was satisfied via (i) $0.2 million in cash and (ii) $1.4 million via the issuance of 260,606 Fund units.

Mielke Way Enterprises

On February 28, 2006, we acquired the business and assets of a private Alberta-based oilfield services company for total cash consideration of approximately $1.1 million. The company provides vacuum truck and steam cleaning services to customers in the oil and gas industry.

Eugene Smith Trucking Ltd.

In February 2006, we entered into a letter of intent to acquire 100% of the issued and outstanding shares of Eugene Smith Trucking Ltd. The company provides various oilfield services to customers in the oil and gas industry, including vacuum truck, flush-by, and pressure services. The proposed purchase price for the shares is $4.5 million, payable through a combination of (i) $2.0 million in cash and (ii) the issuance of $2.5 million in Fund units.

Completion of the proposed acquisition is subject to a number of conditions including, but not limited to, the completion of satisfactory due diligence by Eveready. Assuming that all of the conditions are satisfied, we anticipate that the effective date of the acquisition will be April 1, 2006.

We estimate that this acquisition could generate EBITDA (see "Non-GAAP Financial Measures" and "Note Regarding Forward Looking Statements") of between $1.0 and $1.2 million on an annual basis.

The acquisitions of Mielke Way Enterprises and Eugene Smith Trucking Ltd. represent our on-going consolidation of a fragmented oilfield services industry while also expanding our services into additional geographic locations in east-central Alberta and western Saskatchewan.

Proposed Acquisition of Two Additional Industrial and Oilfield Services Businesses

On March 1, 2006, we entered into a confidential letter of intent to acquire an industrial and oilfield services business. The proposed purchase price for all of the assets, including the equipment and other intangible assets, is approximately $7.0 million, payable through cash consideration. We estimate that this proposed acquisition could generate revenue of approximately $7.0 million and EBITDA of approximately $2.0 million on an annual basis (see "Non-GAAP Financial Measures" and "Note Regarding Forward Looking Statements"). Completion of this proposed acquisition is subject to a number of conditions including, but not limited to, the completion of our due diligence. Assuming that all of the conditions are satisfied, it is anticipated that this acquisition will be completed in late March or early April 2006.

On March 10, 2006, we entered into a confidential letter of intent to acquire an 80% interest in another industrial and oilfield services business. The proposed purchase price is approximately $30.0 million, payable (i) 50% in cash consideration and (ii) 50% via the issuance of units of Eveready. The units are to be issued at a deemed price per unit equal to the lower of (i) $7.00 per unit and (ii) the 10-day weighted average trading price of the units as traded on the Toronto Stock Exchange on the day preceding the effective date of the acquisition. We estimate that this proposed acquisition could generate EBITDA of approximately $9.0 to $10.0 million for the year ending December 31, 2006 (see "Non-GAAP Financial Measures" and "Note Regarding Forward Looking Statements"). Completion of this proposed acquisition is subject to a number of conditions including, but not limited to, the completion of our due diligence. Assuming that all of the conditions are satisfied, it is anticipated that this acquisition will be completed on May 1, 2006.

Critical Accounting Estimates

Preparation of consolidated financial statements requires that we make assumptions regarding accounting estimates for certain amounts contained within the consolidated financial statements. Our significant accounting estimates include estimating bad debts on accounts receivable; amortization of intangible assets and property, plant, and equipment; the fair value of assets and liabilities acquired in business combinations; estimated impairment of long-lived assets; the fair value of unit-based awards; asset retirement obligations; the fair value of reporting units for goodwill impairment testing purposes; and estimates of various taxation matters. We believe that each of our assumptions and estimates is appropriate to the circumstances and represents the most likely future outcome. However, because of the uncertainties inherent in making assumptions and estimates regarding unknown future outcomes, future events may result in significant differences between estimates and actual results.

Provision for Doubtful Accounts Receivable

We perform ongoing credit evaluations of our customers and grant credit based upon past payment history, financial condition, and anticipated industry conditions. Customer payments are regularly monitored and a provision for doubtful accounts is established based upon specific situations and overall industry conditions. Our history of bad debt losses has been within expectations and is generally limited to specific customer circumstances. However, given the cyclical nature of the energy industry in which many of our customers operate, a customer's ability to fulfill its payment obligations can change suddenly and without notice.

Amortization of Intangible Assets and Property, Plant, and Equipment

Our intangible assets and property, plant, and equipment are amortized based upon estimated useful lives and salvage values. We review our historical experience with similar assets to help ensure that these amortization rates are appropriate. However, the actual useful life of the assets may differ from our original estimate due to factors such as technological obsolescence and maintenance activity.

Fair Value of Assets and Liabilities Acquired in Business Combinations

The value of acquired assets and liabilities on the acquisition date require the use of estimates to determine the purchase price allocation. Estimates are made as to the valuations of property, plant, and equipment, intangible assets, and goodwill, among other items. In certain circumstances, such as the valuation of property, plant, and equipment and intangible assets acquired, we rely on independent third party valuations.

Asset Impairment

We assess the carrying value of long-lived assets, which include property, plant, and equipment and intangible assets, for indications of impairment when events or circumstances indicate that the carrying amounts may not be recoverable from estimated cash flows. Estimating future cash flows requires assumptions about future business conditions and technological developments. Significant, unanticipated changes to these assumptions could require a provision for impairment in the future.

Goodwill is assessed for impairment at least annually. This assessment includes a comparison of the carrying value of the reporting unit to the estimated fair value to ensure that the fair value is greater than the carrying value. We arrive at the estimated fair value of a reporting unit using valuation methods such as discounted cash flow analysis. These valuation methods employ a variety of assumptions, including future revenue growth, expected earnings, and earnings multiples. Estimating the fair value of a reporting unit is a subjective process and requires the use of our best estimates. If our estimates or assumptions change from those used in our current valuation, we may be required to recognize an impairment loss in future periods.

Asset Retirement Obligations

We are required to recognize our future obligations to restore our landfill facility (the Pembina Area Landfill) to an acceptable condition, as determined by regulatory authorities. We have estimated these future costs based upon current and proposed reclamation and closure techniques in view of current environmental laws and regulations. It is reasonably possible that the ultimate costs could change in the future and that changes to these estimates could have a significant effect on our consolidated financial statements.

Taxation Matters

Income tax provisions, including current and future income tax assets and liabilities, may require estimates and interpretations of federal and provincial income tax rules and regulations, and judgments as to their interpretation and application to our specific situation. Although there are tax matters that have not yet been confirmed by taxation authorities, we believe that the provision for income taxes is adequate.

Fair Value of Unit-based Awards

The fair value of unit options granted is determined at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options that are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including expected unit price volatility. Because our unit Option Plan has characteristics that are significantly different from those of traded options, and because changes in subjective input assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a single reliable measure of the fair value of our unit options granted.

Changes in Accounting Policies

Cash and Cash Equivalents

Bank overdrafts on our demand revolving credit facility, which were classified as a component of cash and cash equivalents in prior periods, have been reclassified to investing and financing activities in the statement of cash flows in the accompanying consolidated financial statements. These bank overdrafts are normally not of a temporary nature and are therefore no longer included in cash and cash equivalents.

Income Taxes

Effective January 1, 2005 and in connection with the reverse takeover of River Valley, ER Group was reorganized into an unincorporated, open-ended mutual fund trust. Concurrent with the reverse takeover, we prospectively adopted the recommendations of the Canadian Institute of Chartered Accountants ("CICA") Emerging Issues Committee Abstract 107 - "Application of CICA 3465 to Mutual Fund Trusts, Real Estate Investment Trusts, Royalty Trusts and Income Trusts."

The Fund complies with the Income Tax Act (Canada) to qualify as a mutual fund trust. As a result, the Fund is not subject to income taxes to the extent that its taxable income in a year is paid or payable to a Unitholder. Accordingly, no provision for current income taxes for the Fund is made. In addition, the Fund is not subject to the recommendations of CICA section 3465 "Income Taxes", as the Fund distributes to its Unitholders all or virtually all of its taxable income that would otherwise be taxable by the Fund. We intend to continue to meet the requirements under the Income Tax Act applicable to such trusts, and there is no indication that we will fail to meet those requirements.

We continue to follow the liability method of accounting for any incorporated subsidiaries. Under this method, we recognize both the current and future income tax consequences of all transactions that have been recognized in the financial statements.

Accounting Policies Adopted in 2005

In 2005, we also adopted some new accounting policies to address new developments in our business. These included the following:

Intangible Assets

We acquired a number of intangible assets through business acquisition in 2005. Intangible assets with finite lives are recorded at cost and amortized over their estimated useful lives. The accompanying consolidated financial statements provide a breakdown of the intangible assets we acquired.

Asset Retirement Obligations

Pursuant to our acquisition of the Pembina Area Landfill on November 30, 2005, we adopted Canadian Institute of Chartered Accountants ("CICA") Section 3110, "Accounting for Asset Retirement Obligations". We are required to incur certain costs in capping and closing disposal cells at the landfill once they have been filled to capacity. Under Section 3110, the fair value of this obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and then amortized over its estimated useful life. In subsequent periods, the balance of the liability accretes until the date of expected settlement of the asset retirement obligation. Actual asset retirement costs are charged against the provision when incurred.

Unit-based Compensation

On November 17, 2005, we issued unit options to employees and trustees of the Fund under our Unit Option Plan. These options are recognized in accordance with the fair-value based method of accounting. Compensation expense for unit options awarded under the plan are measured at fair value at the grant date using the Black-Scholes valuation model and are recognized as unit-based compensation expense over the vesting period of the options granted.

Earnings per Unit

By becoming a publicly traded income fund in 2005, we also adopted CICA section 3500 "Earnings per Share". Under this section, basic earnings per unit are computed based on the weighted average number of units outstanding during the period. Diluted earnings per unit are computed using the treasury stock method, which assumes that the cash that would be received on the exercise of unit options is applied to purchase Fund units at the average price during the period and that the difference between the Fund units issued upon the exercise of the options and the number of Fund units obtainable under this computation, on a weighted average basis, is added to the number of units outstanding. Anti-dilutive options are not considered in computing diluted earnings per unit.

Financial Instruments

(a) Fair value of financial instruments

The carrying amounts of accounts receivable, work in progress, accounts payable and accrued liabilities, unitholder distributions payable, and notes payable approximate their fair values because of the short-term maturity of these instruments. The carrying value of bank indebtedness and long-term debt approximates fair value because the applicable interest rates are based on variable reference rates. The fair value of our investment in Astec Safety Services Ltd. has not been determined as there is no secondary market for this financial instrument. The uncertainty and broad range of outcomes pertaining to related future cash flows renders the calculation of a fair value with appropriate reliability impractical. The carrying value of asset retirement obligations approximates fair value because the credit adjusted discount rate used to value the liability is similar to year-end interest rates.

(b) Credit risk

Credit risk arises from the possibility that the entities to which we provide services may experience financial difficulty and be unable to fulfill their obligations. A substantial amount of our revenue is generated from customers in the oil and gas industry. This results in a concentration of credit risk from customers in this industry. A significant decline in economic conditions in this industry would increase the risk that customers will experience financial difficulty and be unable to fulfill their obligations to us.

We mitigate our credit risk by assessing the credit worthiness of our customers on an ongoing basis. We also closely monitor the amount and age of balances outstanding. To date, our bad debts have been within expectations and are generally limited to specific customer circumstances.

(c) Interest rate risk

We are subject to interest rate risk on our credit facilities because they are based on floating rates of interest. The required cash flow to service the debt will fluctuate as a result of changes in market rates. We have not entered into any derivative agreements to mitigate these risks.

(d) Foreign currency risk

We are exposed to foreign currency fluctuations in relation to our United States operations, and thus are exposed to the financial risk of earnings fluctuations arising from changes in foreign exchange rates and the degree of volatility of these rates. We do not use derivative financial instruments to reduce our exposure to foreign currency risk. In our opinion, our exposure to foreign currency risk is not significant since the majority of our operations are conducted in Canada.

Business Risks

We face a number of business risks that could cause our actual results to differ materially from those disclosed in our forward looking statements (See "Note Regarding Forward Looking Statements"). These business risks include the following:

- Cash distributions are not guaranteed and will fluctuate with the financial performance of Eveready

- Financial instrument risks - (see "Financial Instrument" section above)

- Availability of future debt and equity financing

- Failure to realize anticipated benefits of acquisitions

- Dependence on key personnel

- Workforce availability

- Regulatory and statutory developments

- Competition

- Reliance on management information systems

- Industry and worldwide economic and political conditions

Additional information regarding our business risks is provided in the Annual Information Form of Eveready Income Fund. Investors and the public should carefully consider these factors, other uncertainties, and potential events as well as the inherent uncertainty of forward looking statements when making investment decisions with respect to Eveready.

We identify below the following three principal risks that affect our business and our ability to meet our financial goals.

Dependence on the Oil and Gas Industry

A large portion of our revenue is generated from customers operating in the oil and gas industry in western Canada. As a result, we are susceptible to changes in the general economic conditions in this sector. A significant decline in general oil and gas activity could significantly affect our business. A significant decline in this industry could be triggered by a number of events, including a significant decline in commodity prices for oil and gas, technological change, regulatory changes, and other changes in industry and worldwide economic and political conditions.

To the extent possible, our business practices have been designed to protect Eveready from sudden changes in the general economic conditions of the oil and gas industry. Some of these practices include the following:

- The majority of our services provided to the oil and gas sector focus on companies involved in oil and gas production versus companies involved in oil and gas exploration. Production side services are subject to less volatility than services offered to the oil and gas exploration sector.

- We service a number of industries other than the oil and gas sector. These industries include the forestry, mining, and manufacturing sectors. These industries require a number of the same services that we currently provide to customers in the oil and gas sector.

- We have geographically diversified our operations into eastern Canada and into the United States. Not only does this expansion introduce a number of growth opportunities for Eveready, but it also reduces our exposure to a sharp decline in economic activity in one specific area.

These practices mitigate our dependency on the oil and gas industry in western Canada. However, due to the nature of our business and the services we provide, our future success remains dependent on the general health of the oil and gas industry.

Workforce Availability

Our ability to provide high quality services to our customers is dependent upon our ability to attract and retain well-trained, experienced employees. Our industry is experiencing a very high demand for and a corresponding shortage of quality employees. We need to attract and retain good employees, or our long-term success and ability to take full advantage of growth opportunities could be threatened.

We have established a number of human resource initiatives and compensation strategies to address this risk. Additional information regarding these initiatives is discussed under the section "Key Performance Drivers".

Safety

Our employees often work in a potentially hazardous work environment. We must maintain a solid safety record if we wish to remain a preferred supplier in our field. To achieve this, we have instituted an active safety program supported by constant practice and continual learning. Many of our largest customers insist on strong safety programs from their suppliers. Should our safety record deteriorate, our ability to grow and achieve our financial objectives would be threatened. Additional information regarding our safety initiatives is discussed under the section "Key Performance Drivers".

Disclosure Controls and Procedures

The Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as at December 31, 2005 and have concluded that such disclosure controls and procedures were operating effectively at December 31, 2005.



Outstanding Unit Data

------------------------------------------------------------------------
As at: March 21
2006
------------------------------------------------------------------------

Fund units 43,858,663
Rollover LP units 14,938,092
------------------------------------------------------------------------

Total 58,796,755
------------------------------------------------------------------------
------------------------------------------------------------------------


As of March 21, 2006, we had 43,858,663 Fund units and 14,938,092 Rollover LP units outstanding totalling 58,796,755 Fund units and Rollover LP units in aggregate. The Rollover LP units were issued in conjunction with the completion of various acquisitions of the Fund, are units of subsidiary limited partnerships of the Fund and are designed to be, to the greatest extent practicable, the economic equivalent of Fund units. Rollover LP units are non-transferable (except to certain permitted assigns) and the holders thereof are entitled to receive distributions on a per unit basis equivalent to holders of units of the Fund. When each of the Rollover LP units were issued, the holder thereof was also issued a non-transferable (except to permitted assigns) right (a "Right") to acquire one unit of the Fund for each Rollover LP unit held.

As of March 21, 2006, we had 1,255,000 options outstanding, exercisable at $5.00 per unit, and issued to employees and trustees of the Fund. All of these options have vested and are due to expire on November 17, 2010.

Non-GAAP Financial Measures

This MD&A contains certain financial measures that do not have any standardized meaning prescribed by Canadian generally accepted accounting principles ("GAAP"). Therefore, these financial measures may not be comparable to similar measures presented by other issuers. Investors are cautioned that these measures should not be construed as an alternative to net earnings or to cash flow from operating, investing, and financing activities determined in accordance with Canadian GAAP as indicators of our performance. These measures are provided to assist investors in determining our ability to generate earnings and cash flow from operations and to provide additional information on how these cash resources are used. These financial measures are identified and defined below:

EBITDA:

EBITDA is defined as earnings before interest, taxes, depreciation, and amortization. We believe, in addition to net earnings, EBITDA is a useful supplemental earnings measure as it provides an indication of the financial results generated by our principal business activities prior to consideration of how these activities are financed or how the results are taxed in various jurisdictions and before non-cash amortization expense. The definition of EBITDA has been changed from that previously presented in our 2005 third quarter MD&A. The definition of EBITDA now excludes the gain (loss) on disposal of property, plant, and equipment. This change was implemented to provide a more standardized definition of the term EBITDA. The effect of this change on the calculation of EBITDA presented in prior periods was minimal.

The following is a reconciliation of EBITDA to net earnings for each of the periods presented in this MD&A:



------------------------------------------------------------------------
Period Ended December 31 December 31 June 30 June 30
($ thousands) 2005 2004 2004 2003
(12 months) (6 months) (12 months) (12 months)
------------------------------------------------------------------------

Net earnings (loss) $ 14,317 $ (126) $ 783 $ 1,420
Add:
Income taxes 1,535 369 641 614
Amortization 10,479 2,430 3,330 2,179
Interest 4,791 2,142 2,349 1,175
------------------------------------------------------------------------

EBITDA 31,122 4,815 7,103 5,388
------------------------------------------------------------------------
------------------------------------------------------------------------

The following is a reconciliation of quarterly EBITDA to net earnings
for each of the quarters presented in this MD&A:

------------------------------------------------------------------------
Dec Sept June March Dec Sept June March
($ thousands) 2005 2005 2005 2005 2004 2004 2004 2004
------------------------------------------------------------------------

Net earnings
(loss) 2,421 3,684 1,738 6,474 169 (295) 238 479
Add:
Income taxes 343 146 23 1,023 168 201 239 333
Amortization 3,781 2,716 2,089 1,893 1,294 1,136 1,164 849
Interest 1,030 1,315 1,157 1,289 858 1,284 736 654
------------------------------------------------------------------------

EBITDA 7,575 7,861 5,007 10,679 2,489 2,326 2,377 2,315
------------------------------------------------------------------------
------------------------------------------------------------------------


EBITDA Margin

EBITDA margin is calculated as EBITDA divided by revenue.

Cash Available for Distribution and Growth:

Cash available for distribution and growth is calculated as cash flow from operations before changes in non-cash operating working capital less required principal repayments of long-term debt and notes payable, and maintenance capital expenditures. Per unit amounts refer to cash available for distribution and growth divided by the weighted average number of units outstanding during the period. We believe that cash available for distribution and growth is a useful supplemental measure as it provides an indication of cash available for distribution to our Unitholders. The components of this supplemental measure are described below:

- "Cash flow from operations before changes in non-cash operating working capital" is derived from the consolidated statements of cash flows and is calculated as cash provided from operating activities before changes in non-cash operating working capital. Per unit amounts refer to cash flow from operations before changes in non-cash operating working capital divided by the weighted average number of units outstanding during the period.

- "Maintenance capital expenditures" are capital expenditures incurred during the period to maintain existing levels of service. This includes capital expenditures to replace property, plant and equipment disposed of and any costs incurred to enhance the operational life of existing property, plant, and equipment. Growth capital expenditures are excluded from this calculation. Growth capital expenditures include additions of new equipment to grow our capital asset base.

- "Payout ratio - including DRIP" is calculated as distributions declared for the period divided by cash available for distribution and growth.

- "Payout ratio - excluding DRIP" is calculated as cash distributions declared for the period (excluding those distributions participating in the DRIP) divided by cash available for distribution and growth.

Working Capital

Working capital is calculated as current assets less current liabilities. Working capital ratio is calculated as current assets divided by current liabilities.

Funded Debt to Total Capital

Funded debt to total capital is calculated as funded debt (bank indebtedness, long-term debt, notes payable, subordinated debt and the current portions of long-term debt, notes payable, and subordinated debt) divided by total capital (funded debt plus unitholders' equity plus preferred shares and amounts due to unitholders).

Note Regarding Forward-Looking Statements

Certain statements contained in this MD&A constitute "forward-looking statements". All statements, other than statements of historical fact, that address activities, events, or developments that the Fund or a third party expects or anticipates will or may occur in the future, including our future growth, results of operations, performance and business prospects and opportunities, and the assumptions underlying any of the foregoing, are forward-looking statements. These forward-looking statements reflect our current beliefs and are based on information currently available to us and on assumptions we believe are reasonable. Actual results and developments may differ materially from the results and developments discussed in the forward-looking statements as they are subject to a number of significant risks and uncertainties, including those discussed under "Business Risks" and elsewhere in this MD&A. Certain of these risks and uncertainties are beyond our control. Consequently, all of the forward-looking statements made in this MD&A are qualified by these cautionary statements and other cautionary statements or factors contained herein, and there can be no assurance that the actual results or developments will be realized or, even if substantially realized, that they will have the expected consequences to, or effects on, the Fund. These forward-looking statements are made as of the date of this MD&A, and we assume no obligation to update or revise them to reflect subsequent information, events, or circumstances unless otherwise required by applicable securities legislation.



Eveready Income Fund
Consolidated Balance Sheets

------------------------------------------------------------------------
As at December 31 December 31 June 30
2005 2004 2004
(thousands of Canadian dollars) $ $ $
------------------------------------------------------------------------
(note 1) (note 1)

ASSETS
Current
Accounts receivable 59,361 23,642 16,850
Work in progress - 199 82
Inventory 5,603 3,397 2,448
Income taxes recoverable - 2 52
Prepaid expenses and deposits 4,016 596 952
------------------------------------------------------------------------
68,980 27,836 20,384
Property, plant, and equipment
(note 5) 110,043 58,122 41,205
Intangible assets (note 6) 17,894 - -
Goodwill (note 7) 28,731 11,805 3,853
Other long-term assets (note 8) 1,784 281 114
------------------------------------------------------------------------
227,432 98,044 65,556
------------------------------------------------------------------------
------------------------------------------------------------------------

LIABILITIES AND UNITHOLDERS' EQUITY
Current
Bank indebtedness (note 9) 9,034 10,979 8,858
Accounts payable and accrued
liabilities 34,266 13,627 7,371
Unitholder distributions payable 1,093 - -
Income taxes payable 46 - -
Due to unitholders - 230 -
Current portion of long-term
debt (note 10) - 8,256 4,456
Current portion of notes payable
(note 11) 3,620 250 -
Current portion of subordinated
debt (note 12) - 250 250
Current portion of asset retirement
obligations (note 14) 745 - -
------------------------------------------------------------------------
48,804 33,592 20,935
Long-term debt (note 10) 49,888 25,781 18,598
Notes payable (note 11) 85 4,415 -
Subordinated debt (note 12) - 3,563 3,688
Due to unitholders - 1,899 1,763
Preferred shares (note 13) - 4,763 3,982
Asset retirement obligations
(note 14) 512 - -
Future income taxes (note 21) 871 5,104 3,831
------------------------------------------------------------------------
100,160 79,117 52,797
------------------------------------------------------------------------
Commitments, contingencies,
and guarantees (note 25)

Unitholders' Equity
Unitholders' capital (note 15) 116,551 - -
Share capital (note 15) - 16,408 9,916
Contributed surplus (note 17) 627 - -
Accumulated earnings 23,015 2,519 2,843
Accumulated distributions (note 18) (12,921) - -
------------------------------------------------------------------------
127,272 18,927 12,759
------------------------------------------------------------------------

227,432 98,044 65,556
------------------------------------------------------------------------
------------------------------------------------------------------------

(see accompanying notes)

Approved on behalf of the Board:

(Signed) "Peter Lacey" (Signed) "J.W. Bruce Picton"
---------------------- ----------------------------
Trustee Trustee


Eveready Income Fund
Consolidated Statements of Earnings and Accumulated Earnings

------------------------------------------------------------------------
Periods Ended December 31 December 31 June 30
2005 2004 2004
$ $ $
(12 months) (6 months) (12 months)
------------------------------------------------------------------------
(thousands of Canadian dollars,
except per unit amounts) (note 1) (note 1)

Revenue 220,309 46,735 78,944
Direct costs 149,295 30,187 50,687
------------------------------------------------------------------------

Gross profit 71,014 16,548 28,257
------------------------------------------------------------------------

Expenses
Administrative and general 39,346 11,793 20,772
Amortization (note 20) 10,479 2,430 3,330
Interest (note 20) 4,791 2,142 2,349
Unit-based compensation (note 16) 627 - 394
Gain on disposal of property,
plant, and equipment (81) (60) (12)
------------------------------------------------------------------------
55,162 16,305 26,833
------------------------------------------------------------------------

Earnings before income taxes 15,852 243 1,424
------------------------------------------------------------------------

Income taxes (note 21)
Current 244 38 -
Future 1,291 331 641
------------------------------------------------------------------------
1,535 369 641
------------------------------------------------------------------------

Net earnings (loss) 14,317 (126) 783

Accumulated earnings,
beginning of period 2,519 2,843 2,087
Trust reorganization
adjustment (note 3) 6,179 - -
Dividends declared - (198) (27)
------------------------------------------------------------------------

Accumulated earnings,
end of period 23,015 2,519 2,843
------------------------------------------------------------------------
------------------------------------------------------------------------

Earnings per unit - basic and
diluted (note 19) 0.38 n/a n/a
------------------------------------------------------------------------
------------------------------------------------------------------------

(see accompanying notes)


Eveready Income Fund
Consolidated Statements of Cash Flows

------------------------------------------------------------------------
Periods Ended December 31 December 31 June 30
2005 2004 2004
$ $ $
(12 months) (6 months) (12 months)
------------------------------------------------------------------------
(thousands of Canadian dollars) (note 1) (note 1)

Operating activities
Net earnings (loss) 14,317 (126) 783
Items not affecting cash:
Amortization 10,479 2,430 3,330
Gain on disposal of property,
plant, and equipment (81) (60) (12)
Unit-based compensation 627 - 394
Future income taxes 1,291 331 641
------------------------------------------------------------------------

26,633 2,575 5,136
Net change in non-cash operating
working capital (note 22) (16,675) 485 (1,680)
------------------------------------------------------------------------

9,958 3,060 3,456
------------------------------------------------------------------------

Investing activities
Purchase of property,
plant and equipment (21,793) (8,172) (16,473)
Purchase of property,
plant and equipment
- buy out of equipment lease
commitments (5,633) - -
Proceeds on disposal of property,
plant and equipment 2,665 1,199 502
Business acquisitions,
net of cash acquired (note22) (26,536) (1,566) (1,154)
Other long term assets - net (1,408) (38) 46
------------------------------------------------------------------------

(52,705) (8,577) (17,079)
------------------------------------------------------------------------

Financing activities
(Decrease) increase in bank
indebtedness (7,253) 1,967 3,401
Distributions/dividends, net
of distribution reinvestments (5,367) (198) (27)
Proceeds from long-term debt 53,338 6,300 14,343
Repayment of long-term debt (46,225) (2,783) (4,477)
Repayment of notes payable (1,377) - -
Repayment of subordinated debt (3,813) (125) (62)
Proceeds from issuance of
units/share capital 55,126 406 1,337
Issuance (redemption) of
preferred shares - (72) 56
Unit issuance costs - acquisitions (172) - -
Collection of employee share
purchase loans receivable 841 216 34
Repayment of advances from
unitholders (2,351) (194) (982)
------------------------------------------------------------------------

42,747 5,517 13,623
------------------------------------------------------------------------

Net change in cash and
cash equivalents - - -
------------------------------------------------------------------------

Cash and cash equivalents,
beginning and end of period - - -
------------------------------------------------------------------------
------------------------------------------------------------------------

(see accompanying notes)


Eveready Income Fund
Notes to the Consolidated Financial Statements
(thousands of Canadian dollars, except unit and per unit amounts)
December 31, 2005


1. Basis of presentation and Plan of Arrangement

Pursuant to an arrangement agreement dated December 3, 2004, River Valley Income Fund ("River Valley") acquired 100% of the issued and outstanding shares of Eveready Industrial Group Ltd. ("ER Group"). In consideration for this purchase, River Valley issued 22,461,875 units or economically equivalent units in a subsidiary limited partnership that are indirectly exchangeable for units of River Valley ("Rollover LP" units) to the former shareholders of ER Group. Concurrent with the Plan of Arrangement, River Valley changed its name to "Eveready Income Fund" (hereinafter the "Fund" or "Eveready").

Reverse Takeover Treatment

By issuing 22,461,875 units or equivalent Rollover LP units, sufficient units of the Fund were issued so that controlling interest (approximately 74.6%) of the Fund passed to the former shareholders of ER Group. As a result, the acquisition has been accounted for as a reverse takeover whereby ER Group has been treated as the purchaser, effective January 1, 2005. These consolidated financial statements represent a continuation of the financial statements of the accounting acquirer, ER Group, whereby the assets and liabilities of ER Group are included in the consolidated financial statements at their historical carrying amounts. The consolidated financial statements for the year ended December 31, 2005 consist of the consolidated operations of ER Group and River Valley after giving effect to the reverse takeover transaction. The comparative balance sheet figures presented at December 31, 2004 and June 30, 2004 and the comparative earnings, accumulated earnings and cash flow figures presented for the six and twelve month periods ended December 31, 2004 and June 30, 2004 respectively are those of ER Group, the accounting acquirer.

2. Summary of significant accounting policies

The Fund provides industrial and oilfield services, health, safety, and environmental services, and oilfield equipment rental services to the energy, resource, and manufacturing sectors.

Use of estimates

These consolidated financial statements have been prepared by management in accordance with Canadian generally accepted accounting principles ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions. These will affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates used in the preparation of these financial statements include estimated bad debts on accounts receivable; estimated useful lives for property, plant, and equipment; the fair value of identifiable intangible assets acquired in business combinations; the fair value of unit-based awards; the fair value of asset retirement obligations; future cash flows used to estimate the fair value of reporting units for goodwill impairment purposes; and estimates on various taxation matters. Actual results may differ from these estimates. These financial statements have, in management's opinion, been properly prepared within reasonable limits of materiality and within the framework of the accounting policies summarized below.

Principles of consolidation

The consolidated financial statements include the accounts of the Fund and its subsidiary limited partnerships and incorporated companies, all of which are wholly owned. The results of operations of subsidiaries acquired during the period are included in these consolidated financial statements from their effective dates of acquisition. All significant inter-company balances and transactions have been eliminated.

Cash and cash equivalents

Cash and cash equivalents include cash on hand, balances with banks, and highly liquid investments with an original maturity of three months or less. Bank borrowings, including bank overdrafts on the Fund's demand revolving credit facility, are normally not of a temporary nature and are therefore not included in cash and cash equivalents.

Inventory

Inventory is primarily comprised of operating supplies and spare parts and is carried at the lower of average cost and replacement cost.

Property, plant and equipment

Property, plant, and equipment is recorded at cost less accumulated amortization. Costs incurred to extend the useful life or to increase the capabilities of property, plant, and equipment are capitalized. Costs incurred to repair or maintain property, plant, and equipment are expensed as incurred.



Property, plant, and equipment is amortized over the estimated useful
lives (net of salvage value) of the assets at the following annual
rates:

Service equipment (light) 20% declining balance
Service equipment (heavy) 15 years straight-line
Automotive equipment (light) 30% declining balance
Automotive equipment (heavy) 12 years straight-line
Rental equipment 4 -20% declining balance
Shop and other equipment 20-50% declining balance
Land and improvements 10% declining balance

Landfill facilities are amortized based on the percentage of estimated
total capacity used in a reporting period.

Intangible assets

Acquired intangible assets with finite lives are recorded at cost and
amortized over their estimated lives at the following annual rates:

Customer relationships 5 years straight-line
Patents 10 years straight-line
Provincial license - landfill 25 years straight-line
Mineral surface leases 20 years straight-line

Once an intangible asset is fully amortized, the gross carrying amount
and the related accumulated amortization are removed from the accounts.


Goodwill

Goodwill results when the purchase price of an acquired business exceeds the sum of the amounts allocated to the assets acquired, less the liabilities assumed, based on their fair values. Goodwill is allocated as of the date of the business combination to the Fund's reporting units that are expected to benefit from the business combination. Goodwill is not amortized, but is evaluated annually for impairment by comparing the fair value of the reporting unit, determined on a discounted after-tax cash flow basis, to the carrying value. If the carrying value of the reporting unit was to exceed its fair value, the Fund would perform the second step of the impairment test. In the second step, the Fund would compare the implied fair value of the reporting unit's goodwill to its carrying amount and any excess would be recognized as an impairment loss.

Long-lived assets

Management assesses the carrying value of long-lived assets, which include property, plant, and equipment and intangible assets, for indications of impairment when events or changes in circumstances indicate that the carrying amounts may not be recoverable from estimated future cash flows. Indications of impairment include items such as an on-going lack of profitability and significant changes in technology. An impairment loss would be recognized if the carrying value of the long-lived asset were to exceed its fair value.

Investments

Long-term investments are recorded at cost. If there are other than temporary declines in the value of these investments, they are written down to their net realizable value.

Deferred financing costs

Costs associated with the issuance of debt obligations are deferred and amortized to interest expense over the term of the debt using the straight-line method.

Asset retirement obligations

The Fund recognizes its obligations to retire certain long-lived assets, specifically its landfill facilities, in accordance with Canadian Institute of Chartered Accountants ("CICA") Section 3110, "Accounting for Asset Retirement Obligations". Under Section 3110, the fair value of a liability for an asset retirement obligation is recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. The associated asset retirement costs are capitalized as part of the carrying amount of the long-lived asset and then amortized over its estimated useful life. In subsequent periods, the balance of the liability accretes until the date of expected settlement of the asset retirement obligations. Actual asset retirement costs are charged against the provision when incurred.

Revenue and cost recognition

The Fund's services are generally provided based on purchase orders or contracts with the customer. They include fixed or determinable prices based upon daily, hourly, or job rates for equipment, materials, and personnel. Revenue is recognized when these services are rendered, related costs are incurred, and when collection of the revenue is reasonably assured. Direct costs include direct material and labour costs and those indirect costs related to performance, such as supplies, tools, and repair costs. General and administrative costs are charged to expense as incurred.

Foreign currency translation

Transactions denominated in a foreign currency and the financial statements of integrated foreign subsidiaries included in the consolidated financial statements are translated as follows: monetary items at the rate of exchange in effect at the balance sheet date; non-monetary items at historical exchange rates; and revenue and expense items (except depreciation and amortization, which are translated at historical exchange rates) at the average exchange rate for the period. Any resulting gains or losses are included in earnings in the period incurred.

Unit-based compensation

Options to purchase Fund units granted under the Unit Option Plan are described further in Note 16 of these consolidated financial statements. They are recognized in accordance with the fair-value based method of accounting. Compensation expense for unit options awarded under the plan is measured at estimated fair value at the grant date. This is done using the Black-Scholes valuation model and is recognized as unit-based compensation expense over the vesting period of the options granted.

Income taxes

The Fund complies with the Income Tax Act (Canada) to qualify as a mutual fund trust. As a result, the Fund is not subject to income taxes to the extent that its taxable income in a year is paid or payable to its unitholders. Accordingly, no provision for income taxes for the Fund is made, except for its incorporated subsidiaries as indicated below.

The Fund follows the liability method of accounting for its incorporated subsidiaries. Under this method, the Fund recognizes both the current and future income tax consequences of all transactions that have been recognized in the financial statements of the incorporated subsidiaries. Future tax assets and liabilities are determined based on differences between financial reporting and the tax bases of assets and liabilities. They are measured using the substantively enacted tax rates and laws that will be in effect when these differences are expected to reverse.

Earnings per unit

Basic earnings per unit are computed based on the weighted average number of units outstanding during the period and is calculated on the basis that all outstanding exchangeable limited partnership units have been converted into Fund units. Diluted earnings per unit are computed using the treasury stock method. This assumes that the cash that would be received on the exercise of unit options is applied to purchase Fund units at the average price during the period and that the difference between the Fund units issued upon the exercise of the options and the number of Fund units obtainable under this computation, on a weighted average basis, is added to the number of units outstanding. Anti-dilutive options are not considered in computing diluted earnings per unit.

3. Changes in accounting policies

(a) Cash and cash equivalents

Bank overdrafts on the Fund's demand revolving credit facility, which were previously classified as a component of cash and cash equivalents in prior periods, have been reclassified to investing and financing activities in the statement of cash flows in these consolidated financial statements. As a result of this change, cash and cash equivalents increased by $10,979 and $8,858 at December 31, 2004 and June 30, 2004 respectively. In addition, cash flows from financing activities increased by $1,966 and $3,401 and cash flows used in investing activities decreased by $155 and $112 respectively for the six-month and twelve-month periods ended December 31, 2004 and June 30, 2004 compared to information presented in previous financial statements.

(b) Income taxes

Effective January 1, 2005 and in connection with the reverse takeover of River Valley, ER Group was reorganized into an unincorporated, open-ended mutual fund trust. Concurrent with the reverse takeover, ER Group, as the accounting acquirer, prospectively adopted the recommendations of the Canadian Institute of Chartered Accountants ("CICA") Emerging Issues Committee Abstract 107 - "Application of CICA 3465 to Mutual Fund Trusts, Real Estate Investment Trusts, Royalty Trusts and Income Trusts." Under this guidance, future income taxes are not provided for in the accounts if the trust entity qualifies as a mutual fund trust, distributes to its unitholders all or virtually all of its taxable income that would otherwise be taxable, intends to continue to meet the requirements under the Income Tax Act applicable to such trusts, and there is no indication that the entity will fail to meet those requirements.

The Fund complies with the Income Tax Act (Canada) to qualify as a mutual fund trust. The Fund distributes to its unitholders all or virtually all of its taxable income that would otherwise be taxable to the Fund. Furthermore, the Fund intends to continue to meet the requirements under the Income Tax Act applicable to such trusts, and there is no indication that the Fund will fail to meet those requirements. Accordingly, as a result of the initial conversion of ER Group to a mutual fund trust and the finalization of the pre-reorganization tax filings of Eveready's incorporated subsidiaries during fiscal 2005, the Fund's future income tax accounts were adjusted on a prospective basis to eliminate the effect of previously recorded temporary differences that will flow to the Fund's unitholders under the new structure. The Fund's future tax liability was reduced in aggregate by $7,048, its future tax assets were reduced by $869, and its accumulated earnings were increased by $6,179.

4. Business acquisitions

Acquisitions are accounted for using the purchase method of accounting, and the results of operations of these acquisitions are included in the consolidated financial statements from their respective acquisition dates.



(a) Acquisitions in fiscal 2005

The Fund completed several business acquisitions in fiscal 2005, as
described below. The aggregate consideration given and fair values of
net assets acquired are as follows:

------------------------------------------------------------------------
Fair value of
net assets River
acquired: Valley ICE Allstar CWI PAL Other Total
------------------------------------------------------------------------

Current assets 6,238 2,009 1,317 5,043 1,681 207 16,495
Property, plant,
and equipment 10,047 4,947 5,120 3,356 4,434 9,434 37,338
Other long-term
assets 95 - - - - - 95
Intangible assets - 691 297 1,190 15,500 428 18,106
Goodwill 7,378 875 1,197 4,552 1,262 1,439 16,703
------------------------------------------------------------------------
Total assets 23,758 8,522 7,931 14,141 22,877 11,508 88,737
------------------------------------------------------------------------

Current
liabilities 7,645 672 1,568 6,312 3,059 98 19,354
Long-term
liabilities 2,615 - 4,386 - 1,249 935 9,185
------------------------------------------------------------------------
Total
liabilities 10,260 672 5,954 6,312 4,308 1,033 28,539
------------------------------------------------------------------------

Net assets
acquired 13,498 7,850 1,977 7,829 18,569 10,475 60,198
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Consideration River
given: Valley ICE Allstar CWI PAL Other Total
------------------------------------------------------------------------

Cash - (98) - 6,590 12,000 8,170 26,662
Transaction costs - 21 21 39 69 - 150
Rollover LP units - - - - - 2,305 2,305
Fund units 13,498 7,927 1,956 1,200 6,500 - 31,081
------------------------------------------------------------------------

Total
consideration 13,498 7,850 1,977 7,829 18,569 10,475 60,198
------------------------------------------------------------------------
------------------------------------------------------------------------


Of the goodwill acquired, $1,203 will be deductible for income tax purposes. Intangible assets acquired that are included in the other category include customer relationships that will be amortized straight-line over their estimated useful lives of 5 years.

(i) River Valley

The value of the consideration given for the reverse takeover of River Valley described in Note 1 was determined based on the 7,626,167 units outstanding of River Valley prior to the reverse takeover at a price of $1.77 per unit for total consideration of $13,498. The reverse takeover transaction involved the acquisition of all classes of shares of ER Group, including preferred shares accounted for by ER Group as liabilities. The ER Group preferred shares were converted to Fund units and are included in Unitholders' capital.

(ii) ICE Joint Venture

Effective April 30, 2005, Eveready acquired all of the business and assets of a joint venture between Diamond Tree Energy Ltd. and Innovative Coke Expulsion Inc. known as the ICE Joint Venture ("ICE"). The joint venture provided industrial cleaning services, including furnace decoking at oil and gas refineries.

The purchase price for the equipment, material agreements, and intangible assets of the joint venture was $6,500. In addition, Eveready acquired the working capital balances of the joint venture including inventory, accounts receivable, prepaid expenses, and the assumption of accounts payable liabilities. The aggregate purchase price, after finalizing working capital adjustments, was $7,850. The majority of the purchase price was satisfied by the issuance of 2,599,179 Fund units for proceeds of $7,927. Due to working capital adjustments in Eveready's favour, the final purchase price was determined to be less than the value of the Fund units initially issued. This excess of $98 was repaid to the Fund in cash.

Intangible assets acquired with ICE consisted of customer relationships ($254) and patents ($437) which will be amortized straight-line over their estimated useful lives of 5 years and 10 years respectively.

(iii) Allstar Oilfield Services Ltd.

Effective July 1, 2005, Eveready acquired 100% of the issued and outstanding shares of Allstar Oilfield Services Ltd. ("Allstar") and related assets used in the business of Allstar, but not previously owned by Allstar (the "Related Assets"). Allstar is based in Lloydminster, Alberta, and provides a broad range of oilfield services to the energy sector including vacuum truck, pressure testing, flush-by, and hydro excavation services.

The final purchase price payable for Allstar and the Related Assets will be based on the earnings of Allstar and the Related Assets over the 12-month period ending June 30, 2006. However, as required by the purchase agreement, the minimum purchase price of $6,090 less assumed debt of approximately $4,134 was satisfied on closing via the issuance of an aggregate of 454,996 Fund units for consideration of $1,956. In addition, acquisition costs of $21 were incurred providing for aggregate consideration of $1,977.

The final purchase price will be based on a multiple of 4.25 times earnings before interest, amortization, and other adjustments realized during the 12-month period ending June 30, 2006. Any additional consideration resulting from this purchase price adjustment clause, if any, will be recognized as an addition to goodwill in the period in which confirmation of the consideration to be paid is known.

Intangible assets acquired with Allstar consist of customer relationships that will be amortized straight-line over their estimated useful lives of 5 years.

(iv) Canada-Wide Industries Ltd.

Effective November 1, 2005 the Fund acquired 100% of the issued and outstanding shares of Canada Wide Industries Ltd. ("CWI"). CWI is a private Alberta-based oilfield equipment rental company that provides access mats to distribute heavy loads over pipelines, and temporary or permanently installed bridges used for remote site logistics. The purchase price for this acquisition was $7,790 payable through a combination of $6,590 in cash and $1,200 via the issuance of 236,686 Fund units. Acquisition costs of $39 were also incurred, providing for aggregate consideration of $7,829.

Intangible assets acquired with CWI consist of customer relationships that will be amortized straight-line over their estimated useful lives of 5 years.

(v) Pembina Area Landfill

Effective November 30, 2005, the Fund acquired 100% of the issued and outstanding shares of Byram Industrial Services Ltd. ("Byram"). Byram owns and operates the Pembina Area Landfill (the "PAL") near Drayton Valley, Alberta. The PAL facility is engineered, constructed, and operated to meet all government regulations associated with this type of facility. The purchase price for this acquisition was $18,500 payable through a combination of: (i) $12,000 in cash; and (ii) $6,500 via the issuance of 1,416,122 Fund units. Acquisition costs of $69 were also incurred, providing for aggregate consideration of $18,569.

Intangible assets acquired with PAL consist of a provincial license to operate the PAL landfill facility ($15,400) and mineral surface leases ($100) that will be amortized straight-line over their estimated useful lives of 25 years and 20 years respectively. Prior to completion of the transaction, Byram entered into a 25-year royalty agreement with a former shareholder requiring payments calculated at 5% of the gross revenue generated by PAL. These payments are recognized as an expense when incurred.

(vi) Other acquisitions

The Fund also completed several smaller businesses acquisitions during the year as follows:

- Effective May 1, 2005, Eveready acquired the camp assets of a related private Alberta company (see Note 24) that provides camps and camp-related equipment to customers in the oil and gas industry for a purchase price of $2,855. The purchase price was paid through the issuance of 755,738 Rollover LP units for deemed proceeds of $2,305; the assumption of certain liabilities related to the assets of $538; and the remainder in cash.

- Effective August 1, 2005, Eveready acquired 100% of the issued and outstanding shares of AAA Precision Mobile Lab Services Inc. ("AAA") for cash consideration of $500. Based out of Edmonton, Alberta, AAA provides medical testing services for companies in a wide range of industries that employ personnel in safety-sensitive positions.

- Effective October 1, 2005, Eveready acquired the business and assets of Alberta Hot Oil Services Ltd. Based out of Wainright, Alberta, the company provides hot oil services to customers in the oil and gas industry. The purchase price of $2,100 was paid through cash consideration.

- Effective October 1, 2005, Eveready acquired the business and assets of Red Arrow Oilwell Services Inc. for cash consideration of $1,450. The company provides flush-by and coil tubing services to customers in the oil and gas industry.

- Effective October 14, 2005, Eveready acquired the business and assets of Kim's Vac Service Ltd. based in Coleville Saskatchewan for cash consideration of $1,618. The company provides vacuum truck, steam cleaning, and pressure services to customers in the oil and gas industry.

- Effective December 1, 2005, Eveready acquired the business and assets of the Ventures North Group Inc. for cash consideration of $2,490. The company provides various oilfield services to customers in the oil and gas industry.



(b) Acquisitions in fiscal 2004

During the six months ended December 31, 2004, the Fund's predecessor
company, ER Group, acquired 100% of the outstanding shares of the
following companies:

- Big Bear Hydrovac Services Ltd. - effective July 1, 2004
- 943835 Alberta Ltd. - effective July 1, 2004
- Bernie's Water Hauling and Transport Ltd. - effective October 1, 2004
- Winterhawk Enterprises (Provost) Ltd. - effective November 1, 2004
- Rocken E Services Ltd. - effective November 1, 2004

------------------------------------------------------------------------
Fair value of net assets acquired: Total
$
------------------------------------------------------------------------

Current assets 8,153
Property, plant, and equipment 12,316
Goodwill 7,952
Other long-term assets 129
------------------------------------------------------------------------
Total assets 28,550
------------------------------------------------------------------------

Current liabilities 5,900
Long-term liabilities 9,157
------------------------------------------------------------------------
Total liabilities 15,057
------------------------------------------------------------------------

Net assets acquired 13,493
------------------------------------------------------------------------
------------------------------------------------------------------------

------------------------------------------------------------------------
Consideration: $
------------------------------------------------------------------------

Cash 2,295
Common shares of ER Group 5,928
Preferred shares of ER Group 795
Notes payable 4,475
------------------------------------------------------------------------

Total consideration 13,493
------------------------------------------------------------------------
------------------------------------------------------------------------

5. Property, plant and equipment

------------------------------------------------------------------------
December 31, 2005 Accumulated Net book
Cost amortization value
$ $ $
------------------------------------------------------------------------

Service equipment 93,739 20,066 73,673
Automotive equipment 31,343 7,132 24,211
Rental equipment 3,800 755 3,045
Shop and other equipment 6,096 2,905 3,191
Land and improvements 3,025 667 2,358
Landfill facilities 3,408 788 2,620
Property, plant, and equipment
under construction 945 - 945
------------------------------------------------------------------------

142,356 32,313 110,043
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
December 31, 2004 Accumulated Net book
Cost amortization value
$ $ $
------------------------------------------------------------------------

Service equipment 45,467 8,494 36,973
Automotive equipment 21,097 4,677 16,420
Shop and other equipment 4,004 1,800 2,204
Land and improvements 1,419 305 1,114
Property, plant, and equipment
under construction 1,411 - 1,411
------------------------------------------------------------------------

73,398 15,276 58,122
------------------------------------------------------------------------
------------------------------------------------------------------------


------------------------------------------------------------------------
June 30, 2004 Accumulated Net book
Cost amortization value
$ $ $
------------------------------------------------------------------------

Service equipment 30,803 5,820 24,983
Automotive equipment 14,361 3,277 11,084
Shop and other equipment 5,406 1,736 3,670
Land and improvements 944 234 710
Property, plant, and equipment
under construction 758 - 758
------------------------------------------------------------------------

52,272 11,067 41,205
------------------------------------------------------------------------
------------------------------------------------------------------------

6. Intangible assets

------------------------------------------------------------------------
December 31, 2005 Accumulated Net book
Cost amortization value
$ $ $
------------------------------------------------------------------------

Customer relationships 2,169 132 2,037
Patents 437 29 408
Provincial license
- Landfill facilities 15,400 51 15,349
Mineral surface leases 100 - 100
------------------------------------------------------------------------

18,106 212 17,894
------------------------------------------------------------------------
------------------------------------------------------------------------

7. Goodwill

------------------------------------------------------------------------
Period Ended December 31 December 31 June 30
2005 2004 2004
$ $ $
------------------------------------------------------------------------

Balance, beginning of period 11,805 3,853 2,845
Current period acquisitions (note 4) 16,703 7,952 1,008
Purchase price adjustments 223 - -
------------------------------------------------------------------------

Balance, end of period 28,731 11,805 3,853
------------------------------------------------------------------------
------------------------------------------------------------------------

8. Other long-term assets

------------------------------------------------------------------------
December 31 December 31 June 30
2005 2004 2004
$ $ $
------------------------------------------------------------------------

Investment in Astec Safety
Services Ltd. 1,000 - -
Deferred financing costs 642 138 95
Other 142 143 19
------------------------------------------------------------------------

1,784 281 114
------------------------------------------------------------------------
------------------------------------------------------------------------


The investment in Astec Safety Services Ltd. ("Astec Safety") consists of 100 redeemable preferred shares. The shares earn a cumulative annual dividend of 10% and are redeemable in equal instalments of 20% per year beginning August 1, 2008. The redemption feature may be accelerated if Astec Safety fails to meet certain financial covenants. The Fund was also granted an option to purchase 100% of the remaining outstanding shares of Astec Safety, exercisable after March 31, 2007 and expiring July 31, 2007, at a price per share based on a pre-determined formula. The pre-determined formula is designed to estimate the fair value of the shares of the company at the date the option is exercised and is subject to a minimum purchase price of $1,000,000.

Deferred financing costs include debt financing costs that have been incurred in establishing the Fund's senior secured credit facility described in Note 10. These costs are amortized to interest expense straight-line over the term of the credit facility. The deferred financing costs at December 31, 2005 are net of accumulated amortization of $74. All of the deferred financing costs outstanding as at December 31, 2004 were expensed during the current year.

9. Bank indebtedness

Bank indebtedness consists of a demand revolving credit facility by way of bank account overdraft with a maximum principal amount of $27,000. The credit facility bears interest at bank prime plus 0.25% and is secured by a first fixed charge over accounts receivable and inventory and a second position charge over equipment. As at December 31, 2005, the effective interest rate on this credit facility was 5.0% (December 31, 2004 - 4.25%). The credit facility agreement contains restrictive covenants, including, but not limited to, a working capital ratio, a fixed charge coverage ratio, a minimum net worth, and a funded debt to total capital ratio. The Fund was in compliance with all covenants under this agreement as at December 31, 2005.

10. Long-term debt

On September 30, 2005, Eveready established a $60,000 revolving extendible senior secured credit facility. The purpose of the credit facility was to refinance existing term indebtedness, subordinated debt, and operating leases; and to finance future capital expenditures and acquisitions. This credit facility requires payments of interest only at the Canadian dollar one-month bankers' acceptance rate plus 3.25%. At December 31, 2005, the effective interest rate on this credit facility was 6.43%. An additional stand-by fee calculated at an annual rate of 0.25% per annum is also required on the unused portion of the credit facility.

The credit facility is secured by a first fixed charge over equipment and a second position charge over accounts receivable and inventory. The credit facility is renewable semi-annually subject to the mutual consent of both parties. To the extent that the credit facility is not renewed, the outstanding credit facility will be subject to a 12-month interest-only phase followed by a straight line amortization period of 30 months. The amount drawn on this credit facility as at December 31, 2005 was $49,888.

The credit facility agreement contains restrictive covenants, including, but not limited to, a working capital ratio, a fixed charge coverage ratio, a minimum net worth, and a funded debt to total capital ratio. The Fund was in compliance with all covenants under this agreement as at December 31, 2005.

If this credit facility is not renewed (the renewal date is March 31, 2006) and the Fund is unable to refinance the credit facility with another lender, the minimum contractual payments required would be repayable as follows:



------------------------------------------------------------------------
Principal repayments required if credit facility is not renewed: $
------------------------------------------------------------------------

2006 -
2007 14,966
2008 19,956
2009 14,966
------------------------------------------------------------------------

49,888
------------------------------------------------------------------------
------------------------------------------------------------------------


Long term debt obligations outstanding as at December 31, 2004 of the Fund's predecessor company, ER Group were due to various lenders and incurred interest at a weighted average rate of 6.05%. These debt obligations were fully extinguished during the current year pursuant to the establishment of the above credit facility.

11. Notes payable

Notes payable consist of unsecured promissory notes due to various entities. Notes payable of $3,521 bear interest at a rate of 6.0% and are due July 1, 2006. The remaining note payable of $184 bears interest at a rate of 6.7% and is repayable in varying instalments until October 2007. At December 31, 2005, included in these notes payable was $880 (bearing interest at a rate of 6.0%) owing to an officer (and spouse) of the Fund.

12. Subordinated debt

The subordinated debt at December 31, 2004 incurred interest at an annual rate of 18% and was fully repaid during the current year pursuant to the establishment of the credit facility described in Note 10. Upon settlement of this debt obligation, the Fund incurred a prepayment interest penalty of $422 (Note 20).

13. Preferred shares

The majority of the redeemable preferred shares outstanding at December 31, 2004 were acquired and converted to units as part of the reverse takeover acquisition of River Valley (Note 4) and therefore, have been included in Unitholders' Capital in these consolidated financial statements. Preferred shares of $415, which were not acquired and converted to units in the reverse takeover of River Valley, were redeemed and converted into a note payable bearing interest at an effective rate of 6.7%.

14. Asset retirement obligations

The Fund's asset retirement obligations relate to closure and post-closure costs concerning the PAL facility acquired on November 30, 2005. Each waste cell must be capped and closed in accordance with environmental regulations once it is filled to capacity. The Fund estimates the undiscounted cash flows related to this obligation to be $1,390. Management has estimated the fair value of this obligation at December 31, 2005 to be $1,257, using a credit adjusted discount rate of 7.0%. The majority of these obligations are expected to be incurred over an estimated period from 2006 to 2011. The Fund recorded the following activity during the year:



------------------------------------------------------------------------
2005
$
------------------------------------------------------------------------

Asset retirement obligation, beginning of year -
New obligations acquired in acquisition of PAL (note 4) 1,249
Accretion expense 8
------------------------------------------------------------------------
Asset retirement obligation, end of year 1,257
Less: costs expected to be incurred within the next fiscal year (745)
------------------------------------------------------------------------

512
------------------------------------------------------------------------
------------------------------------------------------------------------

15. Unitholders' capital

------------------------------------------------------------------------
Number of Amount
Units $
------------------------------------------------------------------------
Authorized - Unlimited number of voting units

Issued:
Opening balances at January 1, 2005:
Share capital of ER Group (accounting acquirer)
as at December 31, 2004 16,408
Number of units outstanding of River Valley
(legal parent) as at December 31, 2004 7,626,167

Activity during the year ended December 31, 2005:
Preferred shares of ER Group converted to equity
(net of shares redeemed of $415) - 4,348
Units issued upon the reverse takeover of River
Valley (note 4) 22,461,875 13,498
Units issued - acquisition of ICE Joint Venture
(note 4) 2,599,179 7,927
Units issued - acquisition of camp assets (note 4) 755,738 2,305
Units issued - acquisition of Allstar (note 4) 454,996 1,956
Units issued - acquisition of CWI (note 4) 236,686 1,200
Units issued - acquisition of PAL (note 4) 1,416,122 6,500
Unit issuance costs - acquisitions - (172)
Units issued - private placement (net of
issuance costs) 6,400,000 22,300
Units issued - public offering (net of
issuance costs) 7,025,650 32,826
Units issued - distribution reinvestment plan
(note 18) 1,294,959 6,614
Repayment of employee share purchase loans
receivable - 841
------------------------------------------------------------------------

Balance at December 31, 2005 50,271,372 116,551
------------------------------------------------------------------------
------------------------------------------------------------------------

The number of units outstanding as at December 31,
2005 consisted of the following components:
Fund units 34,000,210
Rollover LP units 16,271,162
------------------------------------------------------------------------

50,271,372
------------------------------------------------------------------------
------------------------------------------------------------------------


As a result of the reverse takeover transaction, the amount shown as issued capital of the Fund is determined by adding to the issued capital of the legal subsidiary, ER Group, the amount of the cost of the purchase as determined in Note 4 to these consolidated financial statements. However, the number and type of units issued appearing in the table above reflect that of the legal parent, River Valley, including the units issued to affect the reverse takeover.

Rollover LP units

The Rollover LP units, issued in conjunction with the completion of various acquisitions of the Fund, are units of subsidiary limited partnerships of the Fund and are designed to be, to the greatest extent practicable, the economic equivalent of Fund units. Rollover LP units are non-transferable (except to certain permitted assigns) and the holders thereof are entitled to receive distributions on a per unit basis equivalent to holders of units of the Fund. When each of the Rollover LP units were issued, the holder thereof was also issued a non-transferable (except to permitted assigns) right (a "Right") to acquire one unit of the Fund for each Rollover LP unit held.

A total of 18,077,169 Rollover LP units and 18,077,169 Rights were issued on March 31, 2005. Each Rollover LP unit is redeemable at the option of the applicable subsidiary limited partnership at any time on or before March 31, 2010 at a redemption price of $1.77 per unit. Each Right entitles the holder to acquire one unit of the Fund at an exercise price of $1.77 per unit at any time on or before March 31, 2010. Upon the exercise of any of the aforementioned Rights, the applicable subsidiary limited partnership has an obligation to promptly redeem from the exercising holder, or that person's permitted assigns, a number of Rollover LP units equal to the number of Rights so exercised. The Rollover LP units issued on March 31, 2005 also carry the right to one vote per unit held at each meeting of the Unitholders of the Fund.

During the year ended December 31, 2005, 1,806,007 Rights were exercised and the related Rollover LP units redeemed resulting in the issuance of 1,806,007 Fund units. At December 31, 2005, 16,271,162 Rollover LP units remained outstanding.

A total of 755,738 Rollover LP Units and 755,738 Rights were issued on May 20, 2005. Each Rollover LP unit is redeemable at the option of the applicable subsidiary limited partnership at any time on or before May 20, 2010 at a redemption price of $3.05 per unit. Each Right entitles the holder to acquire one unit of the Fund at an exercise price of $3.05 per unit at any time on or before May 20, 2010. Upon the exercise of any of the aforementioned Rights, the applicable subsidiary limited partnership has an obligation to redeem promptly from the exercising holder, or that person's permitted assigns, a number of Rollover LP units equal to the number of Rights so exercised. During the year ended December 31, 2005 all 755,738 Rights were exercised and the related Rollover LP units redeemed, resulting in the issuance of 755,738 Fund units.

Private Placement

Pursuant to a private placement completed June 16, 2005, the Fund issued 6,400,000 units at a price of $3.75 per unit for gross proceeds of $24,000. Issuance costs of $1,700 were incurred in connection with the private placement, resulting in net proceeds of $22,300.

November Public offering

Pursuant to a final prospectus dated November 10, 2005 filed with the applicable securities regulatory authorities, the Fund completed a public offering of 7,025,650 units in Eveready at a price of $5.00 per unit. Gross proceeds were $35,128. Issuance costs of $2,302 were incurred in connection with the offering, resulting in net proceeds of $32,826.

Employee share purchase loans receivable

Offset within Unitholders' capital are employee share purchase loans receivable of $675 (December 31, 2004 - $1,516). These loans were issued by ER Group in prior years to assist employees in acquiring shares in the capital stock of the company. These loans are non-interest bearing and are secured by the share certificates issued (which, pursuant to ER Group's reorganization into an income fund, were converted into unit certificates of the Fund). The employee share purchase loans receivable are reflected in these financial statements as a reduction against Unitholders' capital. The market value of the units held as security for these loans was $4,659 at December 31, 2005. Distributions paid on these units are applied against the principal balance of the loans receivable. At December 31, 2005, employee share purchase loans of $212 (December 2004 - $249, June 2004 - $249) were due from an officer of the Fund.

16. Unit Option Plan

The Fund has established a unit option plan for its trustees, officers, and employees. The Board of Trustees may designate which trustees, officers, and employees of the Fund are to be granted options. The expiry date, vesting conditions, and price payable upon the exercise of any option granted are fixed by the Board of Trustees at the time of grant, subject to regulatory requirements. Options are only granted at exercise prices equal to or greater than the fair market value at the grant date. The aggregate number of units reserved for issuance that may be purchased upon the exercise of options granted pursuant to the plan shall not exceed 10% of the outstanding Fund units.

On November 17, 2005, the Board of Trustees granted 1,255,000 options to approximately 141 employees and 6 trustees of the Fund. These options, vested immediately, are exercisable at $5.00 per unit and expire on November 17, 2010. As at December 31, 2005, all of the 1,255,000 options issued under the Unit Option Plan remained outstanding.

These options were issued in conjunction with a broader employee Unit Participation Plan (the "Plan") that Eveready is planning to implement in 2006. Under the proposed Plan, Eveready employees will be invited to purchase a pre-determined number of Fund units from treasury (including through the exercise of options); Eveready will match these Fund units by acquiring Fund units from market. These units will vest to the employee 20% per year over a 5-year term. Implementation of the Plan is subject to Unitholder and regulatory approval and is expected to be implemented in May 2006.

Unit-based compensation

The fair value of the unit options granted is determined at the date of grant using the Black-Scholes option-pricing model. The Black-Scholes option-valuation model was developed for use in estimating the fair value of traded options that are fully transferable. In addition, option valuation models require the input of highly subjective assumptions, including expected unit price volatility. The Fund's Unit Option Plan options have characteristics that are significantly different from those of freely traded options. In addition, changes in subjective input assumptions can materially affect the fair value estimate.

The fair value of unit options granted by the Fund is recorded as compensation expense over the option's vesting period with an offsetting credit to contributed surplus. Upon exercise of the unit option, the associated amount is reclassified from contributed surplus to unit capital. The consideration paid by employees upon exercise of unit options is also credited to unit capital.

The estimated fair value of the options granted on November 17, 2005 was $627, and was fully recognized as compensation expense during the year. The estimated fair value was determined using the following assumptions:



------------------------------------------------------------------------
Fair value assumptions:
------------------------------------------------------------------------

Risk-free interest rate 3.50%
Estimated hold period to exercise 0.5 years
Annualized volatility 42.0%
Distribution yield 9.6%
------------------------------------------------------------------------

Calculated fair value per option $0.50
------------------------------------------------------------------------
------------------------------------------------------------------------

17. Contributed surplus

------------------------------------------------------------------------
Year Ended December 31
2005
$
------------------------------------------------------------------------

Balance, beginning of year -
Unit-based compensation expense 627
------------------------------------------------------------------------

Balance, end of year 627
------------------------------------------------------------------------
------------------------------------------------------------------------


18. Accumulated distributions

Cash distributions are normally paid by the Fund on a monthly basis to Unitholders of record the last business day of each month. Distributions are payable on or about the 15th day of the month following the record date. The following table summarizes the Fund's distributions on units of record during the year ended December 31, 2005:



------------------------------------------------------------------------

Net
Distribution Distributions Distributions Distributions
Record Date per Unit ($) ($) Reinvested ($) ($)
------------------------------------------------------------------------

January 31, 2005 0.02 153 122 31
March 4, 2005 0.02 154 124 30
March 30, 2005 0.02 154 126 28
April 29, 2005 0.03 906 609 297
May 31, 2005 0.03 1,012 617 395
June 30, 2005 0.03 1,207 602 605
July 29, 2005 0.03 1,224 623 601
August 31, 2005 0.03 1,228 620 608
September 30, 2005 0.03 1,231 615 616
October 31, 2005 0.04 1,646 824 822
November 30, 2005 0.04 2,000 831 1,169
December 30, 2005 0.04 2,006 844 1,162
------------------------------------------------------------------------

Total 0.36 12,921 6,557 6,364
------------------------------------------------------------------------
------------------------------------------------------------------------


Distribution Reinvestment Plan

During the year ended December 31, 2005, the Fund declared total distributions of $0.36 per unit or $12,921. Of this amount, there was a $6,557 reinvestment through the Fund's Distribution Reinvestment Plan ("DRIP"). In addition, there was a reinvestment of $57 in cash distributions payable as at December 31, 2004. This resulted in the issuance of a total of 1,294,959 Fund units for deemed proceeds of $6,614. Distributions declared during the three months ended March 31, 2005 were based on the number of units outstanding of River Valley prior to completion of the income trust reorganization.

The DRIP is a voluntary program that permits eligible Unitholders to reinvest monthly distributions in additional Fund units. Eligible Unitholders may participate in the DRIP by directing their broker, dealer, or investment advisor holding their units to notify the plan administrator, Computershare Trust Company of Canada Ltd., through the Canadian Depository for Securities Inc. ("CDS").

Principal Unitholder Agreement

As a term under the arrangement agreement between ER Group and River Valley, certain of the Unitholders of the Fund (the "Principal Unitholders") signed a Principal Unitholder Agreement. This requires each Principal Unitholder to reinvest immediately through the DRIP, 100% of any cash distributions made by the Fund on that Principal Unitholder's Fund units or Rollover LP Units prior to March 31, 2010. In addition, each Principal Unitholder is restricted from selling more than 10% of their aggregate Fund units or Rollover LP units in any one twelve-month period before March 31, 2010. As at December 31, 2005, approximately 33% of the Fund's total outstanding Fund units and Rollover LP units were subject to the Principal Unitholder Agreement.



19. Earnings per unit

The following table sets forth the computation of basic and diluted
earnings per unit for the year ended December 31, 2005:

------------------------------------------------------------------------
2005
------------------------------------------------------------------------

Net earnings (numerator for basic and diluted earnings per unit) 14,317
------------------------------------------------------------------------

Basic weighted average number of units outstanding 37,436,398
Dilutive effect of outstanding unit options 15,333
------------------------------------------------------------------------
Diluted weighted average number of units outstanding 37,451,731
------------------------------------------------------------------------

Basic and diluted earnings per unit 0.38
------------------------------------------------------------------------
------------------------------------------------------------------------


Basic per unit amounts have been calculated on the basis that all outstanding Rollover LP units have been converted into Fund units. Earnings per share for the comparative periods ended December 31, 2004 and June 30, 2004 of the Fund's predecessor, ER Group, have not been disclosed, as ER Group was a privately owned company during those periods.



20. Supplemental expenditure information

(a) Amortization expense

------------------------------------------------------------------------
Periods Ended December 31 December 31 June 30
2005 2005 2004
(12 months) (6 months) (12 months)
------------------------------------------------------------------------

Amortization of property,
plant and equipment 10,259 2,430 3,330
Amortization of intangible assets 212 - -
Accretion expense 8 - -
------------------------------------------------------------------------

10,479 2,430 3,330
------------------------------------------------------------------------
------------------------------------------------------------------------

(b) Interest expense

------------------------------------------------------------------------
Periods Ended December 31 December 31 June 30
2005 2004 2004
(12 months) (6 months) (12 months)
------------------------------------------------------------------------

Interest - long-term debt 2,654 792 1,194
Interest - subordinated debt 499 350 719
Interest - other 1,216 368 436
Interest - redeemable preferred shares - 632 -
Interest prepayment penalty
- subordinated debt (note 12) 422 - -

------------------------------------------------------------------------
4,791 2,142 2,349
------------------------------------------------------------------------
------------------------------------------------------------------------


21. Income taxes

Income tax provisions, including current and future income tax assets and liabilities, may require estimates and interpretations of federal and provincial income tax rules and regulations, and judgments as to their interpretation and application to our specific situation. Although, there are tax matters that have not yet been confirmed by taxation authorities, management believes that the provision for income taxes is adequate.

The following is a reconciliation of income taxes, calculated at the Canadian combined federal and provincial tax rate, to the income tax provision included in the consolidated statement of earnings and accumulated earnings for each of the periods presented:



------------------------------------------------------------------------
Periods Ended December 31 December 31 June 30
2005 2004 2004
(12 months) (6 months) (12 months)
------------------------------------------------------------------------

Earnings before income taxes 15,852 243 1,424
Earnings allocated to Unitholders (12,822) - -
------------------------------------------------------------------------

Earnings applicable to
incorporated subsidiaries 3,030 243 1,424
------------------------------------------------------------------------
------------------------------------------------------------------------

Provision for income taxes at 33.6% 1,018 82 479
Increase (decrease) related to:
Expenses not deductible for tax
and other 284 74 162
Interest on redeemable preferred
shares - 213 -
Valuation allowance 233 - -
------------------------------------------------------------------------

Income tax expense 1,535 369 641
------------------------------------------------------------------------
------------------------------------------------------------------------


The majority of the income tax expense recognized for the year ended December 31, 2005 was a result of a large portion of the earnings of Eveready for the three-month period ended March 31, 2005 being earned within taxable subsidiaries of the Fund, until the reorganization transaction was completed. Income tax expense of $1,023 was recognized during this period. Income tax expense of $512 recognized during the remainder of 2005 relates to on-going operations that remain within taxable incorporated subsidiaries of the Fund.

The future tax liability of the Fund's incorporated subsidiaries at December 31, 2005 and for the Fund's predecessor company, ER Group, at December 31, 2004 and June 30, 2004 was comprised of the following:



------------------------------------------------------------------------
December 31 December 31 June 30
2005 2004 2004
$ $ $
------------------------------------------------------------------------

Carrying value of property, plant,
and equipment in excess of tax value 1,254 6,337 4,576
Carrying value of intangible
assets in excess of tax value 288 - -
Loss carry forwards (net of valuation
allowance of $233 at December 31, 2005) (661) (1,233) (745)
Other (10) - -
------------------------------------------------------------------------

871 5,104 3,831
------------------------------------------------------------------------
------------------------------------------------------------------------


As at December 31, 2005, the Fund's incorporated subsidiaries had loss-carry forwards of approximately $2,659. These loss-carry forwards are available to reduce taxable income in future years. The majority of these loss-carry forwards were acquired with business acquisitions in 2005. A valuation allowance of $233 has been applied against a portion of these loss carry-forwards. These loss carry-forwards expire in years ranging from 2009 to 2025, depending on the year and in what jurisdiction they were incurred.



22. Supplemental cash flow information

a) Changes in non-cash operating working capital:

------------------------------------------------------------------------
Periods Ended: December 31 December 31 June 30
2005 2004 2004
$ $ $
(12 months) (6 months) (12 months)
------------------------------------------------------------------------

Accounts receivable (20,431) 422 829
Work in progress 199 (117) 500
Inventory (1,547) (863) (859)
Prepaid expenses and deposits (3,153) 398 (473)
Accounts payable and accrued
liabilities 8,208 660 (1,585)
Income taxes payable 49 (15) (92)
------------------------------------------------------------------------

(16,675) 485 (1,680)
------------------------------------------------------------------------
------------------------------------------------------------------------

b) Non-cash investing and financing activities:


During the year ended December 31, 2005, the Fund incurred the following non-cash investing and financing activities:

- Preferred shares of $415 were redeemed by issuing a note payable bearing interest at an annual rate of 6.7% (note 13).

- Distributions declared of $6,614 to Unitholders participating in the DRIP were settled by issuing 1,294,959 Fund units (note 18).



c) Interest and income taxes paid:

------------------------------------------------------------------------
Periods Ended: December 31 December 31 June 30
2005 2004 2004
$ $ $
(12 months) (6 months) (12 months)
------------------------------------------------------------------------

Income taxes paid (recovered) 196 (11) 84
Interest paid 4,585 1,394 2,253
------------------------------------------------------------------------
------------------------------------------------------------------------

d) Cash used in business acquisitions, net of cash acquired:

------------------------------------------------------------------------
Periods Ended: December 31 December 31 June 30
2005 2004 2004
$ $ $
(12 months) (6 months) (12 months)
------------------------------------------------------------------------

Cash consideration paid (note 4) 26,662 2,295 1,154
Transaction costs (note 4) 150 - -
Less: cash acquired in business
acquisitions (276) (729) -
------------------------------------------------------------------------

Cash used for business
acquisitions, net of cash acquired 26,536 1,566 1,154
------------------------------------------------------------------------
------------------------------------------------------------------------


23. Segmented reporting

The Fund operates in three business segments, segregated based on the type of services that the Fund currently provides its customers. These segments include industrial and oilfield services, health, safety, and environmental services, and oilfield equipment rental services.

Industrial and oilfield services are provided to a variety of customers in the energy, resource, and manufacturing sectors. They include, among other services, chemical cleaning and decontamination, high and ultra-high pressure water cleaning, wet and dry vacuum services, furnace tube decoking, hot oiling, pressure testing, flush-by and coil tubing services, hydro-excavation, fluid pumping, heating and filtration, steam cleaning, seismic line clearing, and heli-drilling services.

Health, safety, and environmental services include landfill solid waste disposal services; deep well liquid waste disposal; emergency response services; and training, mechanical dredging, and dewatering; mobile industrial health services; and safety services.

The Fund's expansion into the oilfield equipment rental services business segment will involve the rental, sales, and service of a wide variety of oilfield equipment. These services currently include, among other items, access mats to distribute heavy loads over pipelines, temporary or permanently installed bridges used for remote site logistics, well-site units, generators, and truck and trailer units.

Accounting policies for each of these business segments are the same as those disclosed in note 2. There are no significant inter-segment revenues.

During 2005, the Fund operated principally in one business segment - industrial and oilfield services. However, during the 4th quarter of 2005, the Fund completed a significant acquisition in the health, safety, and environmental services segment through the acquisition of PAL (see Note 4). The Fund also expanded into the oilfield equipment rental business segment through the acquisition of CWI (see Note 4) in November 2005 and then through acquiring the business and assets of Head West Energy subsequent to year-end. As a result, the Fund has reclassified its segment disclosures to include these new business segments and have provided comparative information where applicable.



Selected financial information by reportable segment is disclosed as
follows:

------------------------------------------------------------------------
Year Ended Industrial Health, Oilfield
December 31, 2005 and safety, and equipment
oilfield environmental rental
services services services Total
------------------------------------------------------------------------

Revenue 206,592 11,520 2,197 220,309
Amortization expense 10,006 331 142 10,479
Interest expense 4,743 39 9 4,791
Earnings before income taxes 14,990 71 791 15,852

Goodwill 22,633 1,545 4,553 28,731
Total assets 185,815 24,639 16,978 227,432
Capital expenditures
(excluding business
acquisitions) 21,277 468 48 21,793

------------------------------------------------------------------------
Period Ended December
31, 2004 (6 months)
------------------------------------------------------------------------

Revenue 43,878 2,857 - 46,735
Amortization expense 2,410 20 - 2,430
Interest expense 2,126 16 - 2,142
Earnings (loss) before
income taxes 624 (381) - 243

Goodwill 11,805 - - 11,805
Total assets 97,804 240 - 98,044
Capital expenditures
(excluding business
acquisitions) 8,100 72 - 8,172

------------------------------------------------------------------------
Year Ended June 30, 2004
------------------------------------------------------------------------

Revenue 75,086 3,858 - 78,944
Amortization expense 3,317 13 - 3,330
Interest expense 2,330 19 - 2,349
Earnings (loss) before
income taxes 1,503 (79) - 1,424

Goodwill 3,853 - - 3,853
Total assets 65,545 11 - 65,556
Capital expenditures
(excluding business
acquisitions) 16,469 4 - 16,473
------------------------------------------------------------------------
------------------------------------------------------------------------

The Fund's operations are carried out in the following geographic
locations:

------------------------------------------------------------------------
Period Ended: December 31 December 31 June 30
2005 2004 2004
$ $ $
(12 months) (6 months) (12 months)
------------------------------------------------------------------------

Revenue
Canada (excluding oilsands region) 162,394 29,471 43,041
Oilsands region(1) 53,231 16,406 35,568
United States and international 4,684 858 335
------------------------------------------------------------------------
220,309 46,735 78,944
------------------------------------------------------------------------
------------------------------------------------------------------------

Property, Plant and equipment,
goodwill, and intangibles
Canada 152,284 69,927 45,058
United States and international 4,384 - -
------------------------------------------------------------------------
156,668 69,927 45,058
------------------------------------------------------------------------
------------------------------------------------------------------------

Note: (1) The oilsands region includes the Fund's operations in
north-eastern Alberta.


24. Related party transactions

a) During the year ended December 31, 2005, the Fund incurred $424 for professional fees from a partnership of which one of the trustees of the Fund is an associate.

b) During the year ended December 31, 2005, the Fund incurred $198 for professional fees from a partnership of which one of the trustees of the Fund is a partner.

c) Included in general and administrative expenses for the year ended December 31, 2005 are occupancy costs of $325 (December 2004 - $150, June 2004 - $296) that were paid to companies controlled by certain officers and/or trustees of the Fund.

d) During the year ended December 31, 2005, the Fund incurred camp costs and equipment rental charges of $410 paid to a company of which an officer and trustee of the Fund each own a 50% beneficial interest. In May, 2005 the Fund acquired the majority of the assets of the company at a cost of $2,855 (see Note 4).

e) During the year ended December 31, 2005, the Fund earned service revenue of $304 from a company of which an officer and trustee of the Fund each own a 50% beneficial interest.

f) During the year ended December 31, 2005, interest expense of $53 was incurred on a note payable owing to an officer (and spouse) of the Fund (see Note 11).

These related party transactions were measured at their exchange amounts, which was the consideration established and agreed to by the related parties. Management's opinion is that these transactions were conducted at terms and rates that represent fair value for the services received and the assets acquired. All of these transactions were conducted in the normal course of operations, except the assets acquired in part (d) above, which were supported by an independent appraisal.

25. Commitments, contingencies, and guarantees

Commitments

a) The Fund has entered into operating leases for office and shop premises and equipment that provide for minimum annual lease payments as follows:



------------------------------------------------------------------------
$
------------------------------------------------------------------------

2006 5,520
2007 5,763
2008 3,960
2009 997
2010 614
------------------------------------------------------------------------

16,854
------------------------------------------------------------------------
------------------------------------------------------------------------


Contingencies

a) From time to time the Fund is subject to claims and lawsuits arising in the ordinary course of operations. In the opinion of management, the ultimate resolution of such pending legal proceedings will not have a material adverse effect on the Fund's financial position.

Guarantees

a) The Fund has guaranteed certain loan balances owing by key employees to a chartered bank. The loans are secured by Units of the Fund that were issued to the employees with the loan proceeds. At no time may the outstanding balance of the loans exceed the unit buy-back value. The total principal balance of the guarantees outstanding as at December 31, 2005 was $1,060. This amount includes $355 that relates to loan balances owing by officers of the Fund.

b) The Fund has provided certain guarantees to GE Canada Equipment Finance ("GE Finance") regarding financing that GE Finance has provided to certain contractors. The loans were provided for the purchase of specific service and automotive equipment used by the contractors in providing services to the Fund. The loans are secured by the specific equipment. The total balance of the loans guaranteed by the Fund as at December 31, 2005 was $1,031.

c) As at December 31, 2005 the Fund had issued letters of credit up to a maximum amount of $820. The letters of credit are drawn on the same credit facility as the Fund's bank indebtedness.

d) In the normal course of business, the Fund enters into agreements that include indemnities in favour of third parties. These include engagement letters with advisors and consultants, and service agreements. The Fund has also agreed to indemnify its trustees, officers and employees in accordance with the Fund's bylaws. Certain agreements do not contain any limits on the Fund's liability and therefore it is not possible to estimate the Fund's potential liability under these indemnities. In certain cases, the Fund has recourse against third parties with respect to these indemnities. In addition, the Fund maintains insurance policies that may provide coverage against certain claims under these indemnities.

26. Financial Instruments

a) Fair value of financial instruments

The carrying amounts of accounts receivable, work in progress, accounts payable and accrued liabilities, unitholder distributions payable, and notes payable approximate their fair values because of the short-term maturity of these instruments. The carrying value of bank indebtedness and long-term debt approximate fair value because the applicable interest rates are based on variable reference rates. The fair value of the investment in Astec Safety Services Ltd. described in Note 8 has not been determined as there is no secondary market for this financial instrument. The uncertainty and broad range of outcomes pertaining to the related future cash flows renders the calculation of a fair value with appropriate reliability impractical. The carrying value of asset retirement obligations approximate fair value because the credit adjusted discount rate used to value the liability is similar to year-end interest rates.

b) Credit risk

Credit risk arises from the possibility that the entities to which the Fund provides services may experience financial difficulty and be unable to fulfill their obligations. A substantial amount of the Fund's revenue is generated from customers in the oil and gas industry. This results in a concentration of credit risk from customers in this industry. A significant decline in economic conditions in this industry would increase the risk that customers will experience financial difficulty and be unable to fulfill their obligations to the Fund.

The Fund mitigates its credit risk by assessing the credit worthiness of its customers on an ongoing basis. The Fund also closely monitors the amount and age of balances outstanding. To date, the Fund's bad debts have been within expectations and are generally limited to specific customer circumstances.

c) Interest rate risk

The Fund is subject to interest rate risk on its credit facilities because they are based on floating rates of interest. The required cash flow to service the debt will fluctuate as a result of changes in market rates. The Fund has not entered into any derivative agreements to mitigate these risks.

d) Foreign currency risk

The Fund is exposed to foreign currency fluctuations in relation to its US operations, and therefore is exposed to the financial risk of earnings fluctuations arising from changes in foreign exchange rates and the degree of volatility of these rates. The Fund does not use derivative financial instruments to reduce its exposure to foreign currency risk. In 2005, the Fund recognized a foreign exchange loss of $13 (December 2004 - gain of $11, June 2004 - $nil). In management's opinion, the Fund's exposure to foreign currency risk is not significant since the majority of the Fund's operations are conducted in Canada.

27. Subsequent events and proposed business acquisitions

a) Equity financing

On February 23, 2006, Eveready completed a bought-deal equity financing of 8,000,000 units priced at $7.00 per unit for gross proceeds of $56,000,000. The units were issued pursuant to a final prospectus dated February 13, 2006. Eveready used the net proceeds of the offering to repay debt obligations incurred as a result of past acquisitions and past capital expenditure programs, as well as for general working capital purposes.

b) Business acquisitions

Head West Energy

On March 1, 2006, Eveready acquired the majority of the assets and business of Head West Energy, a private Alberta-based oilfield equipment rental company. The assets acquired included, among other items, well-site units, generators, and truck and trailer units. The gross purchase price of $10,755 was paid in cash. Equipment of $1,175 was then sold to a third party resulting in a net purchase price of approximately $9,580 for the assets that Eveready retained.

Mercedes Surveys

On February 28, 2006, Eveready acquired 100% of the issued and outstanding shares of a private Alberta-based survey company for a total purchase price of $1,606. The company provides seismic surveys using state-of-the-art equipment that support seismic exploration programs for oil and gas companies. The purchase price was satisfied via: (i) $173 in cash and (ii) $1,433 via the issuance of 260,606 units.

Mielke Way Enterprises

On February 28, 2006, Eveready acquired the business and assets of a private Albert-based oilfield services company for total cash consideration of $1,134. The company provides vacuum truck and steam cleaning services to customers in the oil and gas industry.

Tornado Rentals

In December, 2005, Eveready entered into a letter of intent to acquire 100% of the issued and outstanding shares of Tornado Rentals Ltd. based in Stettler, Alberta. The company rents and sells a wide range of oilfield rental equipment. The proposed purchase price for the shares will be based on a predetermined formula based on earnings and assets, but subject to a maximum purchase price of $8,000 less adjustments for long-term debt and working capital.

Completion of the proposed acquisition is subject to a number of conditions including, but not limited to, the completion of satisfactory due diligence by Eveready. Assuming that all of the conditions are satisfied, it is anticipated that the effective date of the acquisition will be April 1, 2006.

Eugene Smith Trucking Ltd.

In February 2006, Eveready entered into a letter of intent to acquire 100% of the issued and outstanding shares of Eugene Smith Trucking Ltd. The company provides various oilfield services to customers in the oil and gas industry including vacuum truck, flush-by, and pressure services. The proposed purchase price for the shares is $4,500, payable through a combination of: (i) $2,000 in cash and (ii) the issuance of $2,500 in units of Eveready.

Completion of the proposed acquisition is subject to a number of conditions including, but not limited to, the completion of satisfactory due diligence by Eveready. Assuming that all of the conditions are satisfied, it is anticipated that the effective date of the acquisition will be April 1, 2006.

Industrial and oilfield service businesses

On March 1, 2006, Eveready entered into a confidential letter of intent to acquire an industrial and oilfield services business. The proposed purchase price for all of the assets, including the equipment and other intangible assets is approximately $7.0 million, payable through cash consideration. Completion of this proposed acquisition is subject to a number of conditions including, but not limited to, the completion of satisfactory due diligence by Eveready. Assuming that all of the conditions are satisfied, it is anticipated that this acquisition will be completed in late March or early April 2006.

On March 10, 2006, Eveready entered into a confidential letter of intent to acquire an 80% interest in another industrial and oilfield services business. The proposed purchase price is approximately $30.0 million, payable (i) 50% in cash consideration and (ii) 50% via the issuance of units of Eveready. The Units are to be issued at a deemed price per unit equal to the lower of: (i) $7.00 per unit; and (ii) the 10-day weighted average trading price of the units as traded on the Toronto Stock Exchange on the day preceding the effective date of the acquisition. Completion of this proposed acquisition is subject to a number of conditions including, but not limited to, the completion of satisfactory due diligence by Eveready. Assuming that all of the conditions are satisfied, it is anticipated that the effective date of this acquisition will be May 1, 2006.

28. Comparative figures

Certain of the comparative figures have been reclassified to conform to the current period's presentation.

Contact Information